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Will High Costs Hurt Comerica's (CMA) Q3 Earnings?

Comerica IncorporatedCMA is scheduled to report its third-quarter 2015 results on Friday, Oct 16, 2015, before the opening bell.

The Texas based-banking giant's second-quarter 2015 earnings missed the Zacks Consensus Estimate. Results reflected higher expenses and provisions for credit losses, partially offset by top-line growth.

Will Comerica post an earnings miss this quarter as well? Let's see how things have shaped up.

Factors to Influence Q3 Results

Overall, the banking industry continued to operate in a challenging environment during third-quarter 2015, facing a number of headwinds including the still low oil prices that pushed banks to limit their exposure in the energy sector and the persistent low rate environment.

Notably, Comerica witnessed provision for credit losses increase significantly year over year to $47 million during second-quarter 2015. The rise in provisions was driven by increase in loans associated with energy along with the uncertainty attributed to persistent volatility and the continual low oil and gas prices. With the energy sector still remaining stressed, the company expects continued decline in its energy loan portfolio. However, we don't expect a substantial decline in provisions.

Further, the company may report increased expenses, reflecting the effect of merit increases as well as higher costs related to technology projects and regulatory compliance.

Additionally, the third quarter is expected to reflect a decline in dealer, mortgage banker, and the general middle market business line owing to seasonality.

However, Comerica's non-interest income might get support from growth in fiduciary income and card fees. Among other factors, loan growth could act as a positive, which will likely improve the company's interest income.

Also, credit quality is expected to remain stable with moderate net charge-offs.

Comerica's activities during the quarter were not sufficient to win analysts' confidence. As a result, the Zacks Consensus Estimate declined 1.4% to 69 cents per share over the last seven days.

Earnings Whispers

Our proven model does not conclusively show that Comerica is likely to beat the Zacks Consensus Estimate in the upcoming release. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or at least 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, this is not the case here as elaborated below.

Zacks ESP: The Earnings ESP for Comerica is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 69 cents.

Zacks Rank: Comerica's Zacks Rank #3 increases the predictive power of ESP. However, we also need to have a positive ESP to be confident of an earnings surprise.

Stocks That Warrant a Look

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

The M&T Bank Corporation MTB has an earnings ESP of +1.52% and carries a Zacks Rank #3. The company is expected to report its third-quarter results on Oct 16.

The earnings ESP for The Bank of New York Mellon Corporation BK is +1.39% and it carries a Zacks Rank #3. The company is scheduled to release its third-quarter results on Oct 20.

Capital One Financial Corporation COF has an earnings ESP of +3.14% and carries a Zacks Rank #3. The company is expected to report its third-quarter results on Oct 22.

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CAPITAL ONE FIN (COF): Free Stock Analysis Report

COMERICA INC (CMA): Free Stock Analysis Report

M&T BANK CORP (MTB): Free Stock Analysis Report

BANK OF NY MELL (BK): 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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