Analysts Split On Timing For KeyCorp

Analysts who like KeyCorp are divided about whether the stock has peaked.

The superregional bank, based in Albany, N.Y., has been one of the big beneficiaries of the rally in bank stocks sparked by this summer's string of large merger announcements.

A bullish expectation led J. Richard Fredericks of Montgomery Securities, San Francisco, to maintain an "aggressive buy" recommendation on KeyCorp. Mr. Fredericks said recently that he thinks there is room for price appreciation.

But Virginia A. Adair of Merrill Lynch & Co. has dropped her intermediate-term rating of KeyCorp to "below average." She still advises more patient investors to acquire it, though.

Appreciation of 18%

Since June 30, KeyCorp's stock has appreciated as much as 18%. But along with many other stocks, KeyCorp fell back from its $40 high last week after the attempted coup in the Soviet Union shook investors. On Wednesday, the stock traded at $39.125, up 25 cents.

Mr. Fredericks thinks KeyCorp shares "should reach a target range of $42 to $45 near term, and could be close to $50 in 12 to 15 months."

He said KeyCorp's stock was recently trading at price-to-earnings multiples "that trail our regional and our industry proxies based on both our 1991 and 1992 earnings estimates."

Mr. Fredericks expects the company to earn $3.85 a share this year and trade at an average of 9.6 times earnings, and to earn $4.50 at about 8.2 times earnings next year.

Shares Look Pricey to Adair

On the other hand, Ms. Adair noted that KeyCorp's shares, at a price of $40, had appreciated to 168% of its second-quarter adjusted book value of $24.07 and 155% of stated book value.

The Merrill analyst said she felt this valuation level was "excessive for current and intermediate-term levels of profitability," specifically a return on assets range of 0.80% to 0.85% and "return on equity about 14% on a modest equity-to-assets ratio of 4.9%."

A KeyCorp spokesman could not be reached for comment.

The company has pursued a "snowbelt" strategy by acquiring banks in the West and Pacific Northwest. That has cushioned the company against the impact of the recession that has hurt other banks in the Northeast, its home region.

The bank operates in six states in the West and has about 32% of its loan portfolio there.

Conservative Strategy

Thanks to conservative lending policies dictated by chairman Victor J. Riley Jr., KeyCorp has no highly leveraged loans and faces minimal exposure to construction lending.

Mr. Fredericks noted that KeyCorp's credit quality and earnings momentum are better than the median performance for the banks he follows.

Despite an emphasis in the West, KeyCorp's most recent growth surge has come from sources much closer to home: its acquisition of Empire Savings and part of Goldome Savings, Buffalo, from the Federal Deposit Insurance Corp.

Ms. Adair said KeyCorp's strategy of expanding, particularly through nondilutive acquisitions of RTC assets, with subsequent cost savings, would boost profits.

Last spring, KeyCorp declined to bid for the failed Bank of New England. At the time, Mr. Riley said, "It wasn't the New England economy that scared us away. We see other opportunities ahead."

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