Comerica Placed On Review - Analyst Blog

Comerica Inc. ( CMA ) has been placed on review for a possible downgrade by Moody's Investors Service, a division of Moody's Corporation ( MCO ) on concerns about the company's capability to return to its typical profit level.

Comerica's senior debt is currently rated at A2 by the rating agency. According to the agency, in a stressed operating environment and particularly due to the continuous low interest rate atmosphere, it would be difficult for Comerica to bounce back to its prior profit levels. As a result, Comerica's strategic actions to counter such challenges would be reviewed.

While Comerica has been posting profits in recent times on the back of an improvement in credit quality and lower loan loss provisions, significant top-line expansion still remains elusive. However, Comerica has been boosting investors' confidence by redeploying capital.

Recently, the company's board of directors approved its plan to continue with the current share repurchase program in the first quarter of 2012. Management expects the share repurchase program along with dividend payments to result in a payout of up to 50% of net income for the first quarter of 2012. During the third quarter, Comerica also completed the acquisition of Sterling Bancshares Inc.

Going forward, we believe that Comerica's strategic expansion efforts and focus on cost containment are a strategic fit. The acquisition of Sterling will enhance its growth in Texas. The company is focused on opportunities to accelerate growth, particularly in the urban markets of California and Texas. Continuous geographic diversification beyond Comerica's traditional and slower-growing Midwest markets could drive growth over the next cycle.

Capital deployment efforts also inspire investors' confidence in the stock. Yet, a challenging economic environment, its significant exposure to riskier areas such as commercial real estate markets, lack of meaningful loan growth and regulatory headwinds are the downsides.

Comerica currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.

COMERICA INC ( CMA ): Free Stock Analysis Report

MOODYS CORP ( MCO ): Free Stock Analysis Report

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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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