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Comerica (CMA) Up 9.2% Since Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Comerica Incorporated CMA . Shares have added about 9.2% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Comerica's Tops Q4 Earnings Estimates, Expenses Drop

Comerica delivered a positive earnings surprise of 4.2% in fourth-quarter 2016. Adjusted earnings per share of $0.99 came ahead of the Zacks Consensus Estimate of $0.95. The adjusted figure excludes a restructuring charge of $0.07 per share. Also, earnings increased 43.8% year over year.

Better-than-expected results reflect higher revenues and lower expenses. Moreover, fall in provisions was another tailwind. However, lower deposits and rise in non-performing assets remain concerns.

Net income came in at $164 million, up 41.4% year over year. This figure includes a restructuring charge of $20 million.

Furthermore, segment wise, on a year-over-year basis, net income increased 3.5% at Business Bank and 9.5% at Wealth Management. On the other hand, Retail Bank and Finance segments recorded net loss in the quarter.

For full-year 2016, net income was $477 million or $2.68 per share compared with $515 million or $2.84 per share in 2015. Earnings per share lagged the Zacks Consensus Estimate of $2.98. Notably, 2016 results include a restructuring charge of $59 million or $0.34 per share.

Revenues Up, Expenses Down

For full-year 2016, the company reported net revenue of $2.8 billion, up 3.7% year over year. However, it lagged the Zacks Consensus Estimate of $2.9 billion.

Comerica's fourth-quarter net revenue was $722 million, up 3.3% year over year. However, the figure lagged the Zacks Consensus Estimate of $729 million.

Net interest income increased 5.1% on a year-over-year basis to $455 million. Moreover, net interest margin expanded 7 basis points (bps) to 2.65%.

Total non-interest income came in at $267 million, slightly up on a year-over-year basis. Increased card fees and other non-interest income primarily led to the rise, partially countered by lower commercial lending fees.

Further, non-interest expenses totaled $461 million, down 4.4% year over year. The fall was chiefly due to lower salaries and benefits expenses and other non-interest expenses, partly mitigated by higher restructuring charges.

Notably, Growth in Efficiency and Revenue (GEAR Up) Initiative Implementation continues with over $25 million of expense savings in 2016.

Solid Balance Sheet

As of Dec 31, 2016, total assets and common shareholders' equity were $73.0 billion and $7.8 billion, respectively, compared with $71.9 billion and $7.6 billion as of Dec 31, 2015.

Total loans were slightly up on a year-over-year basis to $49.1 billion. However, total deposits decreased 1.5% from the prior-year quarter to $59 billion.

Credit Quality: A Mixed Bag

Total non-performing assets surged 55.2% year over year to $607 million. Also, allowance for loan losses was $730 million, up 15.1% from the prior-year period. Additionally, the allowance for loan losses to total loans ratio was 1.49% as of Dec 31, 2016, up from 1.29% as of Dec 31, 2015.

However, net loan charge-offs plunged 29.4% on a year-over-year basis to $36 million. In addition, provision for credit losses plummeted 41.7% year over year to $35 million.

Strong Capital Position

As of Dec 31, 2016, the company's tangible common equity ratio was 9.89%, down 19 bps year over year. Common equity Tier 1 capital ratio was 11.07%, up from 10.54% in the year-ago quarter. Total risk-based capital ratio was 13.24%, up from 12.69% in the prior-year quarter.

Capital Deployment Update

Comerica's capital deployment initiatives highlight the company's capital strength. During 2016, the company repurchased 6.6 million shares under the existing share repurchase program. This, combined with dividends, resulted in a total payout of $458 million to shareholders in the year.

Notably, during the reported quarter, Comerica repurchased 1.8 million shares under its existing equity repurchase program. This, combined with dividends, resulted in a total payout of $139 million to shareholders.

Impressive Outlook for 2017

Comerica provided guidance for 2017, taking into consideration the current economic environment and the persistent low rates, along with the GEAR Up initiative, resulting in $30 million in revenues and $125 million in expense savings.

The updated GEAR Up initiative includes an anticipated annual run-rate benefit of about $270 million by year-end 2018. Also, management believes these initiatives will result in a double digit return on equity and will improve efficiency ratio to below 60% by year-end 2018. Notably, 19 banking centers are expected to be consolidated by the end of second-quarter 2017.

The company anticipates higher net interest income, including the benefit of short-term rate increase and loan growth in Dec 2016, partially mitigated by rise in funding costs and slight loan yield compression. Notably, the recent rise in short-term rates is likely to be over $70 million, assuming a 25% deposit beta.

Non-interest income is estimated to be higher, reflecting an increase of 4-6%. The rise is expected on the GEAR Up opportunities, slight growth in treasury management and card fees, along with wealth management products, including fiduciary and brokerage services.

Non-interest expenses are predicted to be lower, excluding an estimated $25-$50 million restructuring expense. Notably, additional $125 million in GEAR Up savings is expected. Including restructuring charges, expenses are projected to decrease 4-5%.

Provision for credit losses is likely to remain low, with steady performance in overall portfolio. Notably, provision and net charge-offs are expected to be in line with historical normalized levels of 30-40 bps.

Income tax expense is anticipated to approximate 33% of pre-tax income.

Comerica expects average loan growth to be higher, in line with Gross Domestic Product growth. The outlook reflects rise in most lines of business and a sustained decline in energy portfolio.

How Have Estimates Been Moving Since Then?

Following the release , investors have witnessed a downward trend for fresh estimates. There has been one revision lower for the current quarter. While looking back an additional 30 days, we can see even more downward momentum. There have been six downward revisions in the last two months.

Comerica Incorporated Price and Consensus

Comerica Incorporated Price and Consensus | Comerica Incorporated Quote

VGM Scores

At this time, Comerica's stock has a subpar Growth Score of 'D', though it is lagging a bit on the momentum front with an 'F'. Charting a somewhat similar path, the stock was allocated a grade of 'D' on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregte VGM Score of 'F'. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate investors will probably be better served looking elsewhere.

Outlook

While estimates have been broadly trending downward for the stock, the magnitude of these revisions has been net zero. Notably, the stock has a Zacks Rank #2 (Buy). We are expecting an above average return from the stock in the next few months.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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