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Comerica Incorporated (CMA) Up 3.2% Since Last Earnings Report: Can It Continue?
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A month has gone by since the last earnings report for Comerica Incorporated (CMA - Free Report) . Shares have added about 3.2% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Comerica Incorporated due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Comerica delivered a fourth-quarter 2020 positive earnings surprise of 23.1%. Earnings per share of $1.49 easily surpassed the Zacks Consensus Estimate of $1.21. However, bottom line came in lower than the prior-year quarter figure of $1.85.
The company’s results were supported by fall in provisions. Also, the capital position remained strong. Nevertheless, lower revenues, due to reduction in net interest and non-interest income, were recorded. Moreover, higher expenses and reduced loans balance were major drags.
Net income came in at $215 million in the quarter, down 19.5% year over year from $269 million.
In full-year 2020, net income totaled $474 million or $3.27 per share, down from the prior year’s $1.2 billion or $7.87 per share. Full-year earnings, however, outpaced the Zacks Consensus Estimate of $2.98.
Furthermore, segment wise, on a year-over-year basis, net income increased 10% at Commercial Bank. Wealth Management reported 65.5% decline in net income. The Finance and Retail segments reported net loss.
Revenues Fall on Low Rates, Expenses Rise
In 2020, revenues were $2.91 billion, down 13.1% year over year. Nevertheless, the top line beat the Zacks Consensus Estimate of $2.88 billion.
Comerica’s fourth-quarter net revenues were $734 million, down 9.4% year over year. However, the top line surpassed the consensus estimate of $703.7 million.
Net interest income slipped 13.8% on a year-over-year basis to $469 million in the quarter, on lower short-term rates. In addition, net interest margin contracted 84 basis points (bps) to 2.36%.
Total non-interest income came in at $265 million, slightly down on a year-over-year basis. Lower service charges on deposit accounts, commercial lending fees and brokerage fees mainly affected the results, partly mitigated by increase in card fees.
Non-interest expenses totaled $473 million, up 4.9% year over year. The upswing resulted chiefly from higher salaries and benefits expense, software expense and occupancy-related costs.
Efficiency ratio was 64.27% compared with the prior-year quarter’s 55.46%. A rise in ratio indicates a fall in profitability.
Solid Balance Sheet
As of Dec 31, 2020, total assets and common shareholders' equity were $88.1 billion and $8.1 billion, respectively, compared with $83.6 billion and $7.9 billion as of Sep 30, 2020.
Total loans declined marginally on a sequential basis to $52.3 billion. However, total deposits jumped 6.4% from the prior quarter to $72.9 billion.
Credit Quality: A Mixed Bag
Total non-performing assets increased 67% year over year to $359 million. Also, allowance for loan losses was $948 million, up 48.8%. Additionally, the allowance for loan losses to total loans ratio was 1.81% as of Dec 31, 2020, up from 1.27% on Dec 31, 2019. Further, net loan charge-offs jumped 38.1% to $29 million.
However, a benefit of $17 million was recorded during the quarter against provision for credit losses of $8 million in the prior-year quarter.
Strong Capital Position
As of Dec 31, 2020, the company's tangible common equity ratio was 8.02%, down 117 bps year over year. Common equity Tier 1 capital ratio was 10.35%, up from 10.13%. Total capital ratio was 13.21%, up from 12.13%.
Capital Deployment
The company returned a total of $378 million to common shareholders through dividends and the repurchase of $189 million of common stock (3.2 million shares) prior to the suspension of the repurchase plan in response to the uncertainty of the COVID-19 pandemic environment.
Outlook for Q1 2021
Comerica has provided guidance for first-quarter 2021 compared with fourth-quarter 2020, on anticipations of gradual improvement in economic conditions.
Comerica expects average loans to decline. The outlook underscores decline in Mortgage Banker Finance and Energy loans, partially offset by growth in National Dealer Services and general Middle Market. Also, PPP loan forgiveness is likely to exceed additional advances. Furthermore, average deposits are expected to be strong.
The company projects net interest income to shrink on lower interest rates and reduced average loan balances, partly offset by management of loan and deposit pricing.
Non-interest income is likely to decline as fourth-quarter levels of deferred compensation asset returns, card fees, warrants and securities trading income are not expected to repeat, along with a seasonal reduction in syndication fees. This is likely to be partially offset by higher service charges on deposit accounts, fiduciary income and brokerage fees.
Non-interest expenses are projected to decline, resulting from lower deferred compensation and pension expenses, seasonal reduction in occupancy, staff insurance and advertising.
Provisions for credit losses are expected to be reflective of economic environment, including pace of economic recovery. Net charge-offs are expected to be modestly higher.
For first-quarter 2021, effective tax rate excluding discrete items is likely to be 22%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 18.23% due to these changes.
VGM Scores
Currently, Comerica Incorporated has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. However, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Comerica Incorporated has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.
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Comerica Incorporated (CMA) Up 3.2% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for Comerica Incorporated (CMA - Free Report) . Shares have added about 3.2% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Comerica Incorporated due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Comerica Q4 Earnings Beat Estimates, Revenues Decline
Comerica delivered a fourth-quarter 2020 positive earnings surprise of 23.1%. Earnings per share of $1.49 easily surpassed the Zacks Consensus Estimate of $1.21. However, bottom line came in lower than the prior-year quarter figure of $1.85.
The company’s results were supported by fall in provisions. Also, the capital position remained strong. Nevertheless, lower revenues, due to reduction in net interest and non-interest income, were recorded. Moreover, higher expenses and reduced loans balance were major drags.
Net income came in at $215 million in the quarter, down 19.5% year over year from $269 million.
In full-year 2020, net income totaled $474 million or $3.27 per share, down from the prior year’s $1.2 billion or $7.87 per share. Full-year earnings, however, outpaced the Zacks Consensus Estimate of $2.98.
Furthermore, segment wise, on a year-over-year basis, net income increased 10% at Commercial Bank. Wealth Management reported 65.5% decline in net income. The Finance and Retail segments reported net loss.
Revenues Fall on Low Rates, Expenses Rise
In 2020, revenues were $2.91 billion, down 13.1% year over year. Nevertheless, the top line beat the Zacks Consensus Estimate of $2.88 billion.
Comerica’s fourth-quarter net revenues were $734 million, down 9.4% year over year. However, the top line surpassed the consensus estimate of $703.7 million.
Net interest income slipped 13.8% on a year-over-year basis to $469 million in the quarter, on lower short-term rates. In addition, net interest margin contracted 84 basis points (bps) to 2.36%.
Total non-interest income came in at $265 million, slightly down on a year-over-year basis. Lower service charges on deposit accounts, commercial lending fees and brokerage fees mainly affected the results, partly mitigated by increase in card fees.
Non-interest expenses totaled $473 million, up 4.9% year over year. The upswing resulted chiefly from higher salaries and benefits expense, software expense and occupancy-related costs.
Efficiency ratio was 64.27% compared with the prior-year quarter’s 55.46%. A rise in ratio indicates a fall in profitability.
Solid Balance Sheet
As of Dec 31, 2020, total assets and common shareholders' equity were $88.1 billion and $8.1 billion, respectively, compared with $83.6 billion and $7.9 billion as of Sep 30, 2020.
Total loans declined marginally on a sequential basis to $52.3 billion. However, total deposits jumped 6.4% from the prior quarter to $72.9 billion.
Credit Quality: A Mixed Bag
Total non-performing assets increased 67% year over year to $359 million. Also, allowance for loan losses was $948 million, up 48.8%. Additionally, the allowance for loan losses to total loans ratio was 1.81% as of Dec 31, 2020, up from 1.27% on Dec 31, 2019. Further, net loan charge-offs jumped 38.1% to $29 million.
However, a benefit of $17 million was recorded during the quarter against provision for credit losses of $8 million in the prior-year quarter.
Strong Capital Position
As of Dec 31, 2020, the company's tangible common equity ratio was 8.02%, down 117 bps year over year. Common equity Tier 1 capital ratio was 10.35%, up from 10.13%. Total capital ratio was 13.21%, up from 12.13%.
Capital Deployment
The company returned a total of $378 million to common shareholders through dividends and the repurchase of $189 million of common stock (3.2 million shares) prior to the suspension of the repurchase plan in response to the uncertainty of the COVID-19 pandemic environment.
Outlook for Q1 2021
Comerica has provided guidance for first-quarter 2021 compared with fourth-quarter 2020, on anticipations of gradual improvement in economic conditions.
Comerica expects average loans to decline. The outlook underscores decline in Mortgage Banker Finance and Energy loans, partially offset by growth in National Dealer Services and general Middle Market. Also, PPP loan forgiveness is likely to exceed additional advances. Furthermore, average deposits are expected to be strong.
The company projects net interest income to shrink on lower interest rates and reduced average loan balances, partly offset by management of loan and deposit pricing.
Non-interest income is likely to decline as fourth-quarter levels of deferred compensation asset returns, card fees, warrants and securities trading income are not expected to repeat, along with a seasonal reduction in syndication fees. This is likely to be partially offset by higher service charges on deposit accounts, fiduciary income and brokerage fees.
Non-interest expenses are projected to decline, resulting from lower deferred compensation and pension expenses, seasonal reduction in occupancy, staff insurance and advertising.
Provisions for credit losses are expected to be reflective of economic environment, including pace of economic recovery. Net charge-offs are expected to be modestly higher.
For first-quarter 2021, effective tax rate excluding discrete items is likely to be 22%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 18.23% due to these changes.
VGM Scores
Currently, Comerica Incorporated has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. However, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Comerica Incorporated has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.