The third-quarter 2016 earnings results of the Finance sector participants depicted a significant improvement in the sector’s fundamentals, despite a challenging operating environment.
Comerica Incorporated (CMA - Free Report) is one such banking and financial services company that reported better-than-expected results. This Dallas, TX-based banking giant witnessed improvement in several metrics, including higher revenues and substantial decline in provisions.
Notably, shares of Comerica have gained more than 48% so far this year, outperforming 12.4% gain of the Zacks categorized Major Regional Bank industry.
The company continues to portray strength in several areas amid the current challenging environment that is characterized by low rates and strict regulations.
What Propels the Stock’s Growth?
Efficient expense management: Comerica’s management has made an additional target to its Gear Up initiatives announced in Jul 2016. This additional initiative includes a new retirement program which is expected to result in annual savings of nearly $35 million in 2017 (assuming current actuarial assumptions).
In addition, streamlining additional operations and administrative support functions are expected to add about $5 million to the initial target. Further, expense reduction targets have been increased to around $150 million, which builds up to approximately $200 million by year-end 2018. Also, management anticipates non-interest expenses to be lower in the fourth-quarter 2016.
Committed to shareholders: Comerica won regulatory approval to reward its shareholders with share repurchases and dividend payout. In Jul 2016, the board of directors increased the quarterly dividend by 4.5% to 23 cents per share. Additionally, they authorized an increase in the number of shares to be repurchased by up to 10 million. Notably, the company returned $137 million to shareholders through dividend and share buy backs.
Revenue strength: Despite being troubled during the last few years owing to sluggish economy, Comerica managed to record growth in non-interest income during the first nine months of 2016. Further, management projects non-interest income to be relatively stable in fourth-quarter 2016.
Notably, driven by the company’s Gear Up initiatives, revenue enhancements are projected to be around $30 million for 2017 and approximately $70 million for 2018. This will be achieved through expanded product offerings, enhanced sales tools and improved customer analytics. Moreover, the stock has a projected revenue growth of 4.3% versus the industry average of 4.2%, highlighting better growth prospects for the stock.
Strong leverage: Comerica’s debt/equity ratio is 0.76, compared with the industry average of 0.90. This indicates lower debt level relative to the industry. The relatively strong financial health of the company will help it perform better under dynamic business environment than its peers.
Upward Estimate Revisions: Over the last 60 days, the Zacks Consensus Estimate for the stock moved upward by 13.2% to 94 cents per share for the current quarter and by 9.2% to $2.97 per share for the current year. This indicates analysts’ optimism about the company’s earnings performance.
Comerica currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
Other stocks that warrant a look in the same space include The Bank of New York Mellon Corp. (BK - Free Report) , Fifth Third Bancorp (FITB - Free Report) and Bank of America Corp. (BAC - Free Report) , each holding a Zacks Rank #2. All the three companies boast a decent earnings surprise history, recording an average positive earnings surprise of 4.7%, 18.9% and 6.4%, respectively, over the trailing four quarters.
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