It has been about a month since the las t earnings report for Comerica (CMA). Shares have added about 5% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Comerica due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recen t earnings report in order to get a better handle on the important catalysts.
Comerica Q4 Earnings Beat Estimates on Higher Revenues
Comerica's fourth-quarter 2018 earnings per share of $1.88 surpassed the Zacks Consensus Estimate of $1.86. Also, the results compared favorably with year-ago adjusted figure of $1.24.
Higher revenues and improved credit metrics were reflected. Moreover, the capital position remained strong. Also, lower expenses were a tailwind. However, lower deposits and lower fee income were the undermining factors.
Including certain non-recurring items, net income came in at $310 million compared with $112 million reported in the year-ago quarter.
For 2018, net income available to common shareholders was approximately $1.23 billion or $7.20 per share compared with $738 million or $4.14 reported in the prior year. On an adjusted basis, earnings came in at $1.24 billion or $7.24 per share.
Segment wise, on a year-over-year basis, net income increased 38.9% at Business Bank and 33.3% at Wealth Management. Retail Bank segment recorded significant growth in net income from the prior-year quarter. Finance segmen t report
ed loss in the current quarter, consistent with year-ago quarter. Revenues Climb and Expenses Decline
For full-year 2018, adjusted revenues came in at $3.3 billion, up 9.8% on a year-over-year basis. The figure was almost in line with the Zacks Consensus Estimate.
Comerica's fourth-quarter revenues were $864 million, up 4.1% year over year. Also, it was in line with the Zacks Consensus Estimate.
Net interest income increased 12.7% to $614 million. Moreover, net interest margin expanded 47 basis points (bps) to 3.58%.
Non-interest income came in at $250 million, down 12.3% on a year-over-year basis. Lower card fees and service charge on deposits were partially offset by higher fiduciary income and brokerage fees.
Further, non-interest expenses totaled $448 million, down 7.2% year over year. The decline was chiefly due to lower outside processing fee and FDIC insurance expenses, partially offset by higher salaries and benefits expense and equipment costs. Balance Sheet Position Weakens
As of Dec 31, 2018, total assets and common shareholders' equity were $70.8 billion and $7.5 billion, respectively, compared with $71.5 billion and $8 billion as of Dec 31, 2017.
Total loans rose 2% year over year to $50.1 billion. However, total deposits decreased about 4% from the prior-year quarter to $55.6 billion. Credit Quality Improves
Total non-performing assets plunged 32.2% year over year to $230 million. Also, allowance for loan losses was $701 million, down 7%. Additionally, allowance for loan losses to total loans ratio was 1.34% as of Dec 31, 2018, down from 1.45% as of Dec 31, 2017. In addition, provision for credit losses declined 6% from the year-ago quarter.
Furthermore, Comerica reported net charge-offs of $11 million compared with $16 million recorded in prior-year quarter. Strong Capital Position
As of Dec 31, 2018, the company's tangible common equity ratio was 9.78%, down 54 bps year over year. Common equity tier 1 capital ratio was 11.12%, down from 11.68% reported in the year-ago quarter. Capital Deployment Update
Comerica's capital-deployment initiatives highlight the company's capital strength. During 2018, the company returned $1.6 billion to shareholders including repurchase of 14.8 million common shares for a total cost of $1.3 billion.
Notably, during the reported quarter, Comerica repurchased 6.3 million shares under its existing equity repurchase program. This, combined with dividends, resulted in a total payout of $599 million to shareholders.
Notably, in January 2019, the Board of Comerica approved the authorization to repurchase up to an additional 15 million common shares. This is in addition to 4.7 million shares remaining as of Dec 31, 2018 under the Board's prior authorizations for the share repurchase program. Impressive Outlook for Full-Year 2019
Comerica guided for full-year 2019, taking into consideration the current economic and rate environment, along with the GEAR Up initiatives.
The company anticipates 4-5% higher net interest income, including the benefit of short-term rate increase. Notably, higher average debt as well as lower interest recoveries and loan fees are expected to partially offset the benefit. Management expects full year benefit of the rate increases in 2018 to add around $130-$150 million to net interest income in 2019.
Nonaccrual interest recoveries are expected to decrease about $10-$12 million from the elevated level recorded in 2018.
Non-interest income is estimated to be 2-3% higher resulting from GEAR Up opportunities driving growth in treasury management and card fees, along with fiduciary income.
Non-interest expenses are predicted to be 3% lower, reflecting the end of restructuring charges from the GEAR Up initiatives, lower FDIC insurance expenses by $16 million from the discontinuance of the surcharge, lower compensation and pension expense. These are expected to be partially offset by higher outside processing expenses in line with growing revenues, technology expenditures and typical inflationary pressures.
Provision for credit losses is likely to be 15-25 bps and net charge-offs are expected to be low.
Income tax expenses are expected to approximate 23% of pre-tax income, excluding further tax impact from employee stock transactions.
Comerica expects average loans to grow 2-4%. The outlook reflects rise across most lines of business. However, deposits are likely to decline 1-2% due to lower non-interest bearing deposits.
Common equity Tier 1 capital ratio is targeted at 9.5-10%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
At this time, Comerica has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Comerica has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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