Higher Loans, Card Fees to Aid Comerica's (CMA) Q1 Earnings

Comerica Incorporated CMA is scheduled to report first-quarter 2019 results before the opening bell on Apr 16. Its revenues and earnings are expected to grow year over year.

Before we discuss whether Comerica will be able to keep its earnings beat streak alive in the to-be-reported quarter as well, let’s take a look at how the company performed in the last reported quarter.

The company’s fourth-quarter results reflected robust organic growth on rise in revenues, lower expenses and improved credit metrics. A strong capital position was another positive. However, fall in deposits was a key headwind.

Notably, the company boasts an impressive earnings surprise history. It surpassed estimates in each of the trailing four quarters, the average positive surprise being 7.2%.

Comerica Incorporated Price and EPS Surprise

Comerica Incorporated Price and EPS Surprise | Comerica Incorporated Quote

Why a Likely Positive Surprise?

Our proven model shows that Comerica has the right combination of the two key ingredients —positive Earnings ESP and a Zacks Rank #3 (Hold) or better — to increase the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: The Earnings ESP for Comerica is +0.27%.

Zacks Rank: The company currently carries a Zacks Rank of 3.

Notably, the Zacks Consensus Estimate of $1.94 for the quarter’s earnings reflects growth of 22% year over year.

Factors to Drive Results

Net Interest Income (NII) to Exhibit Growth: Improvement in lending scenario, particularly in commercial and industrial, and consumer portfolios will lend some support to Comerica’s interest income growth.

Also, NII is likely to improve, supported by expanding net interest margin on the back of the late-2018 rate hike. However, flattening and sometimes inversion of yield curve witnessed during the quarter will likely offset the benefit to some extent.

Further, the Zacks Consensus Estimate for average earning assets of $65.2 billion for the first quarter indicates slight year-over-year improvement.

Slight Growth in Card Fees: Revenues from Comerica’s Direct Express government card program are expected to be affected by the January government shutdown. However, consumer spending likely picked pace in the remaining months of the first quarter, resulting in usage of debit/credit cards and merchant payment processing services. Thus, card fees (a major contributor to fee income in 2018) might register marginal growth in to-be-reported quarter.

Overall Non-Interest Income to Remain Stable: Per Comerica’s mid-quarter update provided at the RBC Capital Market Financial Institutions Conference, deposits have likely declined in January and February. Also, no significant improvement is expected to have been witnessed in March. Thus, service charge on deposits accounts might remain muted.

However, equity markets were relatively strong during the quarter, reflecting positive investors’ sentiments over the Fed’s dovish stance on monetary policy and some clarity over U.S.-China trade talks. Thus, fiduciary income is likely to improve on asset inflows. 

Given expectations of rise in NII and muted fee income, total revenues are likely to increase. The consensus estimate for sales for the first quarter is $853.1 million, reflecting an improvement of 7.6% year over year.

Controlled Expenses: The company’s GEAR Up initiatives are expected to keep expenses under control. However, some impact of technological investment, seasonal rise in compensation expenses and restructuring charges is likely to persist.

Credit Quality to Improve: Credit quality is likely to remain strong on the back of an improving economy. Also, the consensus estimate shows nearly 30% decline in non-performing assets and loans, on a year-over-year basis.

Other Stocks to Consider

Here are some other stocks you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this time around.

Northern Trust Corporation NTRS is scheduled to release results on Apr 23. It has an Earnings ESP of +0.57% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Bank of New York Mellon Corporation BK is scheduled to release results on Apr 17. The company, which carries a Zacks Rank of 3, has an Earnings ESP of +0.63%.

The Earnings ESP for BankUnited, Inc. BKU is +1.89% and it carries a Zacks Rank of 3. The company is scheduled to report quarterly numbers on Apr 24.

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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.

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