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Morgan Stanley resumes coverage of KeyCorp, Deutsche Bank upgrades BankUnited

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Morgan Stanley resumes coverage of KeyCorp, Deutsche Bank upgrades BankUnited

Resumed coverage

Morgan Stanley Research analyst Ken Zerbe resumed coverage ofCleveland-based KeyCorpat "equal-weight," with a price target of $13.50.

His 2016, 2017 and 2018 EPS estimates are $1.10, $1.30, and $1.50,respectively.

The analyst expects the company's acquisition of First Niagara Financial Group Inc. to provide it with a morediverse revenue stream, lower efficiency ratio and efficient capital structure.However, he thinks that headwinds of below-peer loan growth, modest organic earningsgrowth, sizable deal-related execution risk and heightened regulatory oversightmight limit the company's upside compared to its peers.

The analyst noted that the company is committed to achievingan efficiency ratio of below-60% long term, down from its 2015 efficiency ratioof 67%, by aggressively cutting expenses through managing occupancy costs, streamliningback and front office functions across its platform, and exiting noncore businesses.However, it is also reinvesting most of the savings back into the business by addingproducts and capabilities in areas like commercial payments business, improvingthe expense ratio only modestly.

The analyst also listed lack of higher interest rates as a smallerheadwind to expense improvement. He also thinks that currently volatile and under-pressurecapital markets activity across the industry can further limit revenue upside.

Upgrade

Deutsche Bank Securities Inc. analyst Dave Rochester upgradedMiami Lakes, Fla.-based BankUnitedInc. to "buy" from "hold" and raised his 12-monthprice target to $38 from $37.

The analyst also adjusted his 2016 core EPS estimate to $2.21from $2.20, while maintaining his 2017 core EPS estimate at $2.65, respectively.

Rochester supported his estimates and company valuation basedon loan/deposit growth that is expected to be well above peers, improving EPS quality,no dependency on rate hikes for earnings growth, the management's confidence inthe company's 2016 expense growth guidance, contained credit, and increasing scarcityvalue in BankUnited's two primary markets of New York and Florida.

The analyst expects the company to generate solid balance sheetgrowth, which he said should more than offset run-off in acquired loan income.


Keefe Bruyette & Woods Inc. on April 11 transferred coverageof Denver-based Guaranty Bancorpto Frank Barlow from Fred Cannon and upgraded the company to "outperform"from "market perform," following the company's announcement to Home State Bancorp.

The analyst also raised the company's 2016 and 2017 EPS estimatesto $1.15 and $1.42 from $1.14 and $1.24, respectively.

The analyst noted that Guaranty Bancorp's recent deal to Home State is expected toincrease the company's market share in its core Colorado markets, complement thebalance sheet and position it to have even greater long-term scarcity value. Theanalyst's upgrade is based on a number of factors, including inexpensive valuation;above-average profitability, for instance 1.1% return on assets and 14% expectedreturn on tangible common equity in 2017; impressive core funding; and scarcityvalue as one of the largest independent banks headquartered in Colorado, as thecompany will be ranked fourth, up from sixth, following deal completion.