KeyCorpKEYNYSE

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DCF Valuation

DCF Valuation Summary

Strong Sell

Fair Value: $8.36 per share(market-calibrated)

-60.0%

Upside to Fair Value

Current

$20.91

Pure Model

$7.28

Fair Value

$8.36

Bull Case

$7.32

Bear Case

$6.77

Market Reality Check

Model Terminal Growth

2.50%

Market-Implied Growth

9.58%

Calibrated Growth

4.98%

Fair value uses 65% model / 35% market-implied terminal growth. Pure model: $7.28.

What's Driving This Ratingfor KEY

✓

CapEx already efficient

CapEx at 0.87% of revenue is already at or below sector maintenance level. No normalization needed — cash conversion is already strong.

↑

Margin expansion modeled

Current EBIT margin is 20.48% — below the sector mature average of 28.00%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $2.8B (26.42% margin).

→

Moderate revenue growth

Analyst consensus projects -28.19% revenue growth, fading to 2.50% by Year 10. Revenue reaches $10.5B (vs $11.2B today).

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $5.56/share (10.1x terminal FCF) while exit multiple gives $9.00/share (15.8x terminal FCF). The 12x EV/EBITDA exit reflects current market multiples, while the perpetuity method with 2.50% growth is more conservative. The base case averages both methods.

🎯

Market pricing in higher long-term growth

To justify $20.91, the market implies 9.58% perpetual growth — 708bps above the model's 2.50%. This suggests the market sees additional growth catalysts (AI, new products, market expansion) not captured in analyst estimates.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 75.85% indicates efficient cash generation. FCF reaches $2.2B by Year 10 (20.62% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)1.07

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)9.31%

Cost of Debt

Pre-tax Cost of Debt24.74%

Tax Rate20.62%

After-tax Cost of Debt19.64%

Equity Weight (E/V)67.55%

Debt Weight (D/V)32.45%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (67.55% × 9.31%) + (32.45% × 19.64%)

= 12.66%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$8.0B	$8.8B	$9.3B	$9.8B	$10.5B
EBIT	$1.6B	$1.8B	$2.2B	$2.4B	$2.8B
Tax	$339M	$372M	$444M	$501M	$572M
NOPAT	$1.3B	$1.4B	$1.7B	$1.9B	$2.2B
+ Depreciation	$61M	$67M	$70M	$74M	$79M
- Capex	$70M	$77M	$81M	$85M	$92M
- Δ NWC	-$315M	$28M	$23M	$24M	$26M
Free Cash Flow	$1.6B	$1.4B	$1.7B	$1.9B	$2.2B
Discount Factor	0.888	0.699	0.551	0.434	0.304
Present Value	$1.4B	$974M	$923M	$823M	$658M

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$2.2B

Terminal Growth Rate2.50%

WACC12.66%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$21.9B

PV of Terminal Value$6.6B

Exit Multiple Method

Year 10 EBITDA$2.9B

Exit Multiple (EV/EBITDA)12.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$34.3B

PV of Terminal Value$10.4B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$9.2B

PV of Terminal Value$6.6B

Enterprise Value$15.8B

(-) Net Debt$9.7B

Equity Value$6.1B

Shares Outstanding1.1B

Price per Share$5.56

Exit Multiple Method

PV of Projected FCFs$9.2B

PV of Terminal Value$10.4B

Enterprise Value$19.6B

(-) Net Debt$9.7B

Equity Value$9.9B

Shares Outstanding1.1B

Price per Share$9.00

Pure Model Fair Value

$7.28

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	1.50%	2.00%	2.50%	3.00%	3.50%
10.66%	$9.95	$10.20	$10.48	$10.80	$11.16
11.66%	$8.35	$8.54	$8.75	$8.98	$9.24
12.66%	$6.98	$7.13	$7.28	$7.45	$7.65
13.66%	$5.79	$5.90	$6.02	$6.15	$6.30
14.66%	$4.74	$4.83	$4.93	$5.03	$5.14

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$6.77

-67.6% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 1.33

Base Case

$7.28

-65.2% vs current

• Analyst consensus
• Terminal growth: 2.5%
• Beta: 1.07

Bull Case

$7.32

-65.0% vs current

• +25% vs analyst consensus
• Terminal growth: 3.0%
• Beta: 0.91

Key Assumptions & Drivers• Financial Services Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth-28.19%

Year 3 Revenue Growth3.30%

Year 5 Revenue Growth2.50%

Year 7 Revenue Growth2.50%

Year 10 Revenue Growth2.50%

Terminal Growth Rate2.50%

Margin & Efficiency

Current EBIT Margin20.48%

Terminal EBIT Margin28.00%

Tax Rate20.62%

Historical Capex / Rev0.87%

NWC / Revenue10.00%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 12x EV/EBITDA (Financial Services sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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