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Will Comerica (CMA) Keep Earnings Beat Streak Alive in Q4?

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Comerica Incorporated (CMA - Free Report) is scheduled to report fourth-quarter and 2021 results, before the opening bell on Jan 19. The bank’s revenues and earnings are likely to have registered growth from the respective year-ago reported figures.

Comerica’s earnings surpassed the Zacks Consensus Estimate in the third quarter of 2021. Results were supported by benefits from provisions and fee income growth.  However, reduction in loan volumes, weak capital position and higher expenses were the downsides.

CMA has an impressive surprise history. Earnings surpassed estimates in all the trailing four quarters, the average being 38.9%.

Comerica Incorporated Price and EPS Surprise

Comerica Incorporated Price and EPS Surprise

Comerica Incorporated price-eps-surprise | Comerica Incorporated Quote

CMA’s activities in the to-be-reported quarter were adequate to instill analysts’ confidence. Evidently, the Zacks Consensus Estimate for fourth-quarter earnings of $1.61 has moved marginally upward in the past 30 days. The figure indicates an 8.1% rise from the year-ago quarter’s reported figure. The consensus estimate for revenues is pegged at $735.4 million, suggesting growth of 0.2% from the year-ago reported figure.

Factors at Play

Net Interest Income (NII): In the fourth quarter, which is a seasonally strong quarter for loan growth, lending activity witnessed a decent acceleration, sequentially. Per the Fed’s latest data, the commercial and industrial loans and real-estate loans were strong in the to be-reported quarter, while the consumer loan portfolio was flat, sequentially. Amid this, CMA is likely to have witnessed decent fourth-quarter loan growth.

Earlier in December 2021, CMA provided an update in a conference, stating that its average loans (excluding Paycheck Protection Program or PPP) increased $296 million through Nov 30, 2021, from the third-quarter level. As of the same date, loan commitments were up $500 million, relative to Sep 30, 2021’s figures. Further, management’s fourth-quarter loan outlook (excluding PPP) was stable at levels reported on Nov 30, 2021.

High liquidity on the balance sheet, low loan yields and low reinvestment rates on securities might have strained the earning asset yields. Moreover, a persistently low interest-rate environment is expected to have left an adverse impact on its NII in the quarter.

The Zacks Consensus Estimate of $89.8 billion for the quarterly average interest earning assets indicates a 13% improvement from the year-ago period’s reported figure, while the consesnsus mark for NII suggests a 1.3% fall from the prior-year reported number to $463 million. Comerica expects NII to be unfavorably impacted by a weak PPP-related income.

Fee Income:  Per the Fed data, deposits improved in the quarter, led by stimulus-driven liquidity and a rise in money market balances. These are likely to have bolstered revenues from service charges on deposits. The Zacks Consensus Estimate for service charges on deposit accounts of $50 million calls for a rise of 6.4% from the year-ago reported figure. Management expects average deposits to remain stronger than the third-quarter levels.

Despite decent consumer spending owing to a decreased unemployment level and consumer optimism in the fourth quarter, activity levels are expected to have reduced due to fading stimulus payments and merchant payment-processing services. Thus, card fees (a major contributor to fee income in the third quarter of 2021) might have affected CMA’s top line during the to-be-reported quarter. The Zacks Consensus Estimate for card fees of $71 million calls for a 1.4% fall from the prior-year reported number.

The consensus estimate of $272 million for overall fee income suggests a 2.6% rise from the yar-ago reported figure. Management expects fee income to be likely supported by customer-driven fee ceategories, benefiting from a rebound in economic conditions. However, these could be more than offset by lower commercial lending, warrant and bank-owned life insurance income.

Expenses: Its GEAR Up initiatives are aimed to keep CMA’s expenses under control. However, some impacts of technological investments and restructuring charges are likely to have prevailed.

Management expects non-interest expenses to decrease in the fourth quarter of 2021 from the third-quarter actuals due to lower compensation, partially offset by higher seasonal expenses and technology investments.

Asset Quality:  With the gradual economic improvement amid the coronavirus pandemic, given the vaccine rollouts combined with additional market re-openings throughout the quarter, CMA is likely to have released reserves in the fourth quarter.

The consensus mark for non-performing assets is pegged at $287 million for the to-be-reported quarter, calling for a 20% decrease from the prior-year period’s reported figure. Also, the consensus estimate for non-performing loans of $285 million suggests a 18.6% fall from the year-earlier’s quarter’s reading.

Now, let’s have a look at what our quantitative model predicts:

The chances of Comerica beating the Zacks Consensus Estimate for fourth-quarter earnings are less. This is because it doesn’t have the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP:  Comerica has an Earnings ESP of -1.84%.

Zacks Rank: Comerica currently sports a Zacks Rank #1 (Strong Buy).

Stocks That Warrant a Look

BOK Financial (BOKF - Free Report) , The PNC Financial Services Group, Inc. (PNC - Free Report) and Huntington Bancshares Incorporated (HBAN - Free Report) are a few companies worth considering as these have the right combination of elements to beat on earnings in their upcoming releases, per our model.

BOK Financial has an Earnings ESP of +3.64% and a Zacks Rank #2 (Buy) at present. BOKF is slated to report fourth-quarter and full-year results on Jan 19.
Over the past 30 days, BOKF’s Zacks Consensus Estimate for quarterly earnings has moved marginally southward.

PNC Financial is scheduled to release fourth-quarter 2021 and annual earnings on Jan 18. PNC, which is Zacks #3 Ranked at present, has an Earnings ESP of +2.29%. You can see the complete list of today’s Zacks #1 Rank stocks here.

PNC’s fourth-quarter earnings estimates have been marginally revised downward over the past month.

Huntington Bancshares is scheduled to release earnings on Jan 21. HBAN, currently a #3 Ranked player, has an Earnings ESP of +1.46%.

The Zacks Consensus Estimate for Huntington Bancshares’ fourth-quarter earnings has beenunchanged over the past month.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.