KeyCorp (KEY) vs. Taiwan Semiconductor Manufacturing Company Limited (TSM): Breaking Down the Regional – Midwest Banks Industry’s Two Hottest Stocks

KeyCorp (NYSE:KEY) shares are up more than 4.96% this year and recently increased 3.02% or $0.62 to settle at $21.17. Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM), on the other hand, is up 8.58% year to date as of 02/14/2018. It currently trades at $43.05 and has returned 2.79% during the past week.

KeyCorp (NYSE:KEY) and Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) are the two most active stocks in the market based on today’s trading volumes. To determine if one is a better investment than the other, we will compare the two companies’ growth, profitability, risk, return, and valuation characteristics, as well as their analyst ratings and sentiment signals.


Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect KEY to grow earnings at a 8.00% annual rate over the next 5 years. Comparatively, TSM is expected to grow at a 15.00% annual rate. All else equal, TSM’s higher growth rate would imply a greater potential for capital appreciation.

Profitability and Returns

Growth in and of itself is not necessarily valuable, and it can even be harmful to shareholders if companies overinvest in unprofitable projects in pursuit of that growth. We will use EBITDA margin and Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. KeyCorp (KEY) has an EBITDA margin of 44.11%. This suggests that KEY underlying business is more profitable KEY’s ROI is 9.50% while TSM has a ROI of 19.90%. The interpretation is that TSM’s business generates a higher return on investment than KEY’s.

Cash Flow 

The value of a stock is simply the present value of its future free cash flows. On a percent-of-sales basis, KEY’s free cash flow was 0% while TSM converted 0% of its revenues into cash flow. This means that, for a given level of sales, KEY is able to generate more free cash flow for investors.

Liquidity and Financial Risk

KEY’s debt-to-equity ratio is 1.06 versus a D/E of 0.14 for TSM. KEY is therefore the more solvent of the two companies, and has lower financial risk.


KEY trades at a forward P/E of 11.52, a P/B of 1.60, and a P/S of 5.18, compared to a forward P/E of 16.41, a P/B of 4.59, and a P/S of 6.83 for TSM. KEY is the cheaper of the two stocks on an earnings, book value and sales basis. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.

Analyst Price Targets and Opinions

When investing it’s crucial to distinguish between price and value. As Warren Buffet said, “price is what you pay, value is what you get”. KEY is currently priced at a -9.76% to its one-year price target of 23.46. Comparatively, TSM is 0.94% relative to its price target of 42.65. This suggests that KEY is the better investment over the next year.

The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 2.10 for KEY and 2.30 for TSM, which implies that analysts are more bullish on the outlook for TSM.

Risk and Volatility

Analyst use beta to measure a stock’s volatility relative to the overall market. Stocks with a beta above 1 tend to have bigger swings in price than the market as a whole, the opposite being the case for stocks with a beta below 1. KEY has a beta of 0.98 and TSM’s beta is 0.95. TSM’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment

The analysis of insider buying and selling trends can be extended to the aggregate level. Short interest, which represents the percentage of a stock’s tradable shares currently being shorted, captures what the market as a whole feels about a stock. KEY has a short ratio of 1.64 compared to a short interest of 2.81 for TSM. This implies that the market is currently less bearish on the outlook for KEY.


KeyCorp (NYSE:KEY) beats Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) on a total of 7 of the 14 factors compared between the two stocks. KEY is more profitable. In terms of valuation, KEY is the cheaper of the two stocks on an earnings, book value and sales basis, KEY is more undervalued relative to its price target. Finally, KEY has better sentiment signals based on short interest.

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