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Comerica Incorporated (CMA - Free Report) can be a solid bet now, backed by its focus on revenue-enhancing initiatives which will likely drive operational efficiency. Further, the company is expected to benefit from a strong capital position, steady capital deployment and an improved lending scenario in the near term. However, escalating expenses on technological developments and lack of diversification in loan portfolio are concerns.
Shares of this Zacks Rank #3 (Hold) company have gained 36.3% over the past six months compared with 6.1% growth recorded by the industry.
The company has been witnessing upward estimate revisions, reflecting analysts’ optimism about its growth prospects. Over the past 30 days, the Zacks Consensus Estimate for its 2020 and 2021 earnings moved north.
Comerica’s focus on improving operational efficiency led to the introduction of the GEAR Up initiatives in mid-2016. Since the implementation of this initiative, the bank has consolidated 38 banking centers, reduced retirement plan expenses significantly and retrenched around 800 employees, among others. Therefore, the company is on track to generate higher revenues through product enhancements, enhanced sales tools and training and improved customer analytics to drive opportunities.
Comerica remains focused on its revenue growth strategy. Net interest income (NII) witnessed a CAGR of 5.3% over the last five years (2015-2019). We remain optimistic of the company’s income-generation capability, given the implementation of strategic initiatives. Though its NII declined in the first half of 2020 on low rates, with the expected improvement in economy, the company’s loans balance is expected to continue improving, thus aiding NII growth.
Comerica’s capital-deployment activities are encouraging. In January 2020, its board of directors hiked quarterly dividend by 1.5%. Also, last November, the company announced an additional share-buyback plan, with authorization to repurchase 7 million shares. Notably, temporarily share buybacks remain suspended, following the “unprecedented challenge” from the coronavirus pandemic.
With the persistently rising non-interest operating expenses, Comerica is exposed to operational risks. Non-interest expenses saw a CAGR of 2.7% over a five-year period (ended 2018) due to rising salaries and benefits expense, restructuring charges and changes in accounting presentation. Though expenses decreased in 2019 on the GEAR Up initiatives, the same escalated in the first half of 2020 on continued investments in technology, hindering bottom-line expansion. Also, management expects expenses to flare up in the third quarter.
Moreover, Comerica has substantial exposure to commercial and real estate construction loans. As of Jun 30, 2020, the company’s exposure to the loan portfolio was approximately 89% of the total loans. Such high exposure to commercial loans underlines the lack of diversification.
Guaranty Bancshares Inc. (GNTY - Free Report) has been witnessing upward estimate revisions for the past 60 days. Further, the company’s shares have gained 12.2% in the past three months. At present, it carries a Zacks Rank of 2.
Peoples Bancorp Inc. (PEBO - Free Report) has been witnessing upward estimate revisions for the past 60 days. Additionally, the stock has gained 3.2% in three months’ time. It currently carries a Zacks Rank #2.
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Organic Growth Supports Comerica (CMA), Cost Woes Persist
Comerica Incorporated (CMA - Free Report) can be a solid bet now, backed by its focus on revenue-enhancing initiatives which will likely drive operational efficiency. Further, the company is expected to benefit from a strong capital position, steady capital deployment and an improved lending scenario in the near term. However, escalating expenses on technological developments and lack of diversification in loan portfolio are concerns.
Shares of this Zacks Rank #3 (Hold) company have gained 36.3% over the past six months compared with 6.1% growth recorded by the industry.
The company has been witnessing upward estimate revisions, reflecting analysts’ optimism about its growth prospects. Over the past 30 days, the Zacks Consensus Estimate for its 2020 and 2021 earnings moved north.
Comerica’s focus on improving operational efficiency led to the introduction of the GEAR Up initiatives in mid-2016. Since the implementation of this initiative, the bank has consolidated 38 banking centers, reduced retirement plan expenses significantly and retrenched around 800 employees, among others. Therefore, the company is on track to generate higher revenues through product enhancements, enhanced sales tools and training and improved customer analytics to drive opportunities.
Comerica remains focused on its revenue growth strategy. Net interest income (NII) witnessed a CAGR of 5.3% over the last five years (2015-2019). We remain optimistic of the company’s income-generation capability, given the implementation of strategic initiatives. Though its NII declined in the first half of 2020 on low rates, with the expected improvement in economy, the company’s loans balance is expected to continue improving, thus aiding NII growth.
Comerica’s capital-deployment activities are encouraging. In January 2020, its board of directors hiked quarterly dividend by 1.5%. Also, last November, the company announced an additional share-buyback plan, with authorization to repurchase 7 million shares. Notably, temporarily share buybacks remain suspended, following the “unprecedented challenge” from the coronavirus pandemic.
With the persistently rising non-interest operating expenses, Comerica is exposed to operational risks. Non-interest expenses saw a CAGR of 2.7% over a five-year period (ended 2018) due to rising salaries and benefits expense, restructuring charges and changes in accounting presentation. Though expenses decreased in 2019 on the GEAR Up initiatives, the same escalated in the first half of 2020 on continued investments in technology, hindering bottom-line expansion. Also, management expects expenses to flare up in the third quarter.
Moreover, Comerica has substantial exposure to commercial and real estate construction loans. As of Jun 30, 2020, the company’s exposure to the loan portfolio was approximately 89% of the total loans. Such high exposure to commercial loans underlines the lack of diversification.
Stocks to Consider
Piper Sandler Companies (PIPR - Free Report) has been witnessing upward estimate revisions for the past 60 days. Moreover, this Zacks #1 Ranked (Strong Buy) stock has gained 37.6% in the past three months. You can see the complete list of today’s Zacks #1 Rank stocks here.
Guaranty Bancshares Inc. (GNTY - Free Report) has been witnessing upward estimate revisions for the past 60 days. Further, the company’s shares have gained 12.2% in the past three months. At present, it carries a Zacks Rank of 2.
Peoples Bancorp Inc. (PEBO - Free Report) has been witnessing upward estimate revisions for the past 60 days. Additionally, the stock has gained 3.2% in three months’ time. It currently carries a Zacks Rank #2.
Breakout Biotech Stocks with Triple-Digit Profit Potential
The biotech sector is projected to surge beyond $775 billion by 2024 as scientists develop treatments for thousands of diseases. They’re also finding ways to edit the human genome to literally erase our vulnerability to these diseases.
Zacks has just released Century of Biology: 7 Biotech Stocks to Buy Right Now to help investors profit from 7 stocks poised for outperformance. Our recent biotech recommendations have produced gains of +50%, +83% and +164% in as little as 2 months. The stocks in this report could perform even better.
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