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Rising Expenses Hurt Comerica's (CMA) Bottom-line Growth

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Comerica Incorporated’s (CMA - Free Report) elevated costs hurt bottom-line expansion to some extent. Further, a significant concentration of commercial loans is a headwind. Though the company’s focus on revenue-enhancing initiatives to drive operational efficiency is encouraging, its exposure to challenging economies of California and Michigan remains concerning.

Comerica’s rising non-interest expenses is also hurting its performance. It witnessed a CAGR of 2.7% over the last five years (ended 2018) due to rising salaries and benefits expenses, and restructuring costs. Though expenses declined in 2019, continued investment in technological developments might put some pressure on it. Also, management expects expenses to increase about 3% in 2020.

Furthermore, Comerica’s significant exposure to commercial loans (nearly 88% of the total loans), and challenging economies of California and Michigan keeps us apprehensive.

The company’s earnings estimates have been revised 11.5% downward to $5.98 for the current year over the past 30 days.

However, it launched GEAR Up initiatives to drive revenue growth, reduce expenses and improve efficiency by identifying and analyzing areas with room for improvement. Notably, the execution of the initiatives resulted in an efficiency ratio of under 52% in 2019.

Comerica continues to enhance shareholders’ value through steady capital-deployment activities. In January 2020, its board of directors hiked the quarterly dividend by 1.5%. Also, last November, the company announced an additional share-buyback plan, with the authorization to repurchase 7 million shares. These activities seem sustainable, given the company’s strong capital position.

Shares of Comerica have lost 56% over the past year compared with the 36.4% decline recorded by the industry.

 



The stock currently carries a Zacks Rank #5 (Strong Sell).

Some other top-ranked stocks in the same space are PennyMac Financial Services (PFSI - Free Report) and Cohen & Steers (CNS - Free Report) , sporting a Zacks Rank #1, and Moody's Corporation (MCO - Free Report) , carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

PennyMac Financial’s earnings estimates for the current year have been witnessing upward revisions over the past 30 days. Further, the company’s shares have gained 2.1% in the past three years.

Cohen & Steers’ consensus estimate for current-year earnings has witnessed upward revisions over the past 60 days. Moreover, in the past three years, its shares have gained 3.9%.

Zacks Consensus Estimate for 2020 earnings for Moody's has been witnessing upward revisions in the past 60 days. Also, its share price has increased 60% in the past three years.

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