On Sep 13, 2013, we reaffirmed our Neutral recommendation on Comerica Incorporated (CMA - Analyst Report) . This was based on the company’s positive second-quarter 2013 earnings. However, we remain concerned about the unsettled economic environment, regulatory overhangs and persistent pressure on net interest margin.
On Jul 16, Comerica reported second-quarter 2013 earnings per share of 76 cents, beating the Zacks Consensus Estimate by 6 cents. The company’s results reflect increased non-interest income and lower expenses. Further, growth in average loans and deposits as well as improved credit metrics were the positives. However, a marginal decline in net interest income was the headwind.
The Zacks Consensus Estimate for 2013 remained stable at $2.89 per share over the last 60 days. However, for 2014, the Zacks Consensus Estimate declined 1.0% to $2.91 per share over the same time period. Comerica currently carries a Zacks Rank #3 (Hold).
Comerica is a sound asset for yield-seeking investors. In the first half of 2013, share repurchases, combined with dividends, resulted in a total payout of about 76% of net-income to shareholders. Further, we expect the company’s expense saving initiatives and improvement in credit metrics to aid in countering the tepid economic recovery. Moreover, Comerica’s acquisitions will benefit revenue growth going forward.
However, Comerica’s top-line growth is expected to be sluggish in the coming quarters due to severe pressure on NIM. We expect NIM to remain compressed on the assumption of an unchanged yield curve and prepayment fees.
Moreover, lower non-interest income is a major concern for Comerica. Though we expect the fee-based category to improve with economic recovery, this will likely be challenging due to the prevailing sluggish economy. Alongside, the company’s significant concentration in the California and Michigan regions, which were hard hit by the recession, is a cause of concern.
Other Stocks to Consider
Some better-performing banks include BankUnited, Inc. (BKU - Analyst Report) , First Interstate Bancsystem Inc. (FIBK - Snapshot Report) and Firstbank Corp. . All these stocks carry a Zacks Rank #1 (Strong Buy).