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Comerica (CMA) Thrives on Loan Growth Amid Rising Expenses
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Comerica Incorporated (CMA - Free Report) is well-poised to gain on the back of steady loan growth, sales tools improvement and product enhancement. The company’s capital distribution activities are backed by a strong liquidity profile. However, elevated expenses and lack of loan portfolio diversification, along with geographic concentration, remain near-term concerns.
Comerica’s revenue generation heavily relies on its loan growth. The loan balance witnessed a four-year compound annual growth rate (CAGR) of 0.9% (2019- 2023). In 2023, the company exited the mortgage finance business due to funding pressures and reduced profitability. Though the company’s exit from the mortgage finance business is likely to weigh on the loan growth, decent loan demand is expected to sustain the stable growth trend. Management expects loans to grow 5% in 2024.
Comerica’s net interest income (NII) over the years has supported top-line growth and witnessed a four-year CAGR of 1.8% (ended 2023). Expectations of higher yield and reduced notional on swaps are likely to ease NII pressure. Given the expectations of interest rates remaining high in the near term, NII and net interest margin (NIM) are likely to remain decent, while a rise in funding costs might weigh on both. NIM is expected to be above the fourth-quarter 2023 level by 2024 end, per management.
The company closed several banking centers, realigned corporate facilities and streamlined its managerial layers in order to improve operational efficiency. Execution of these initiatives will reduce expenses and improve return on equity (ROE). Also, the company's efforts in product enhancements, improvement in sales tools and training, along with improved customer analytics are expected to drive revenue growth.
As of Dec 31, 2023, the company’s total debt was $9.77 billion. CMA’s total liquidity capacity was $47.7 billion as of the fourth-quarter end. Therefore, with decent cash levels, its capital distribution activities seem sustainable.
Particularly, in February 2023, the company hiked its quarterly dividend by 4.4% to 71 cents per share. It also has a share repurchase plan in place. As of Dec 31, 2023, approximately five million shares remain under the current authorization. Such capital distribution activities are likely to boost investor confidence in the stock.
CMA currently carries a Zacks Rank #3 (Hold). Shares of the company have gained 25.6% over the past six months compared with the industry’s growth of 31.7%. Image Source: Zacks Investment Research
Despite the above-mentioned tailwinds, the company’s non-interest expenses witnessed a CAGR of 7.9% over the last four years, ending 2023. Integrating Ameriprise as a new investment platform is further expected to increase integration costs. Management expects adjusted expenses to rise 3% in 2024, potentially impeding bottom-line growth in the upcoming quarters.
CMA has substantial exposure to commercial and commercial mortgage loans. As of Dec 31, 2023, the company’s exposure to such loans was 78.6% of total loans. The dynamic macroeconomic backdrop and high interest rates may put some strain on commercial lending. Thus, the lack of loan portfolio diversification is probable to hurt the company’s financials if the economic situation worsens.
Comerica’s significant business exposure in California and Michigan, where the economic environment has been volatile over the past few years is a major concern. Such geographic concentration makes the company vulnerable to potential economic doldrums in the region.
Stocks to Consider
Some better-ranked bank stocks worth mentioning are 1st Source Corporation (SRCE - Free Report) and Northern Trust Corporation (NTRS - Free Report) .
1st Source’s earnings estimates for the current year have been revised 7.1% upward in the past 60 days. The company’s shares have gained 22.2% over the past six months. At present, SRCE sports a Zacks Rank of 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Northern Trust’s 2024 earnings estimates have moved slightly upward in the past 30 days. The stock has gained 21.1% over the past six months. Currently, NTRS carries a Zacks Rank #2 (Buy).
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Comerica (CMA) Thrives on Loan Growth Amid Rising Expenses
Comerica Incorporated (CMA - Free Report) is well-poised to gain on the back of steady loan growth, sales tools improvement and product enhancement. The company’s capital distribution activities are backed by a strong liquidity profile. However, elevated expenses and lack of loan portfolio diversification, along with geographic concentration, remain near-term concerns.
Comerica’s revenue generation heavily relies on its loan growth. The loan balance witnessed a four-year compound annual growth rate (CAGR) of 0.9% (2019- 2023). In 2023, the company exited the mortgage finance business due to funding pressures and reduced profitability. Though the company’s exit from the mortgage finance business is likely to weigh on the loan growth, decent loan demand is expected to sustain the stable growth trend. Management expects loans to grow 5% in 2024.
Comerica’s net interest income (NII) over the years has supported top-line growth and witnessed a four-year CAGR of 1.8% (ended 2023). Expectations of higher yield and reduced notional on swaps are likely to ease NII pressure. Given the expectations of interest rates remaining high in the near term, NII and net interest margin (NIM) are likely to remain decent, while a rise in funding costs might weigh on both. NIM is expected to be above the fourth-quarter 2023 level by 2024 end, per management.
The company closed several banking centers, realigned corporate facilities and streamlined its managerial layers in order to improve operational efficiency. Execution of these initiatives will reduce expenses and improve return on equity (ROE). Also, the company's efforts in product enhancements, improvement in sales tools and training, along with improved customer analytics are expected to drive revenue growth.
As of Dec 31, 2023, the company’s total debt was $9.77 billion. CMA’s total liquidity capacity was $47.7 billion as of the fourth-quarter end. Therefore, with decent cash levels, its capital distribution activities seem sustainable.
Particularly, in February 2023, the company hiked its quarterly dividend by 4.4% to 71 cents per share. It also has a share repurchase plan in place. As of Dec 31, 2023, approximately five million shares remain under the current authorization. Such capital distribution activities are likely to boost investor confidence in the stock.
CMA currently carries a Zacks Rank #3 (Hold). Shares of the company have gained 25.6% over the past six months compared with the industry’s growth of 31.7%.
Image Source: Zacks Investment Research
Despite the above-mentioned tailwinds, the company’s non-interest expenses witnessed a CAGR of 7.9% over the last four years, ending 2023. Integrating Ameriprise as a new investment platform is further expected to increase integration costs. Management expects adjusted expenses to rise 3% in 2024, potentially impeding bottom-line growth in the upcoming quarters.
CMA has substantial exposure to commercial and commercial mortgage loans. As of Dec 31, 2023, the company’s exposure to such loans was 78.6% of total loans. The dynamic macroeconomic backdrop and high interest rates may put some strain on commercial lending. Thus, the lack of loan portfolio diversification is probable to hurt the company’s financials if the economic situation worsens.
Comerica’s significant business exposure in California and Michigan, where the economic environment has been volatile over the past few years is a major concern. Such geographic concentration makes the company vulnerable to potential economic doldrums in the region.
Stocks to Consider
Some better-ranked bank stocks worth mentioning are 1st Source Corporation (SRCE - Free Report) and Northern Trust Corporation (NTRS - Free Report) .
1st Source’s earnings estimates for the current year have been revised 7.1% upward in the past 60 days. The company’s shares have gained 22.2% over the past six months. At present, SRCE sports a Zacks Rank of 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Northern Trust’s 2024 earnings estimates have moved slightly upward in the past 30 days. The stock has gained 21.1% over the past six months. Currently, NTRS carries a Zacks Rank #2 (Buy).