We retain our Neutral recommendation on
) based on its fundamentals and the current economic environment.
After reporting encouraging results in the first two quarters of
2012, Comerica came up with impressive third quarter earnings,
comfortably beating the Zacks Consensus Estimate.
Comerica reported third quarter 2012 adjusted earnings of 69
cents per share, beating the Zacks Consensus Estimate of 65
cents. Quarterly results reflected growth in its average loans,
aided by higher average commercial loans. Average deposits also
advanced in the quarter. Further, a stable credit quality
continued to be a positive. Yet, a decline in the top line and
increasing expenses were the negatives.
Going forward, we believe that continuous geographic
diversification beyond the company's traditional and
slower-growing Midwest markets could drive growth over the next
cycle. Revenue synergies from the Sterling acquisition should
augment its top line.
Comerica's capital deployment initiatives through dividend
payment and share buybacks exhibit its capital strength.
Following the Federal Reserve's consent for its capital plan, the
company hiked its quarterly cash dividend by 50%. Moreover, it
has authorized the repurchase of additional shares of common
stock (by about 6 million shares) to execute its capital plan.
Notably, the share repurchases, combined with increased dividend
resulted in a total payout of 89% of net income to shareholders
(excluding the third quarter restructuring charge) in the third
quarter. We expect such activities to boost investors' confidence
in the stock.
Yet, an unsettled economic environment, regulatory overhangs and
a pressure on net interest margin continue to be our concerns.
With heightening competition, shift in the portfolio mix towards
lower yielding loans as well as lower reinvestment rates for the
securities portfolio, net interest margin is likely to continue
to be pressurized in the quarters ahead.
Regulatory issues with respect to capital also remain a headwind
going forward. While the financial reform law is likely to cap
the company's profitability from increased costs and fee
restrictions, we believe that stricter capital norms and
increased reserves that the regulators are proposing to align
with the global standards, is likely to restrict the company's
flexibility with respect to business investments in the medium
Therefore, we believe that the risk-reward profile for Comerica
is currently balanced. Hence, we have reaffirmed our Neutral
recommendation on the stock. Comerica currently retains its Zacks
#3 Rank, which translates into a short-term Hold rating. Among
Fifth Third Bancorp
M&T Bank Corp.
) also have a Zacks #3 Rank.
COMERICA INC (CMA): Free Stock Analysis
FIFTH THIRD BK (FITB): Free Stock Analysis
M&T BANK CORP (MTB): Free Stock Analysis
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