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Comerica (CMA) Benefits From Cost Control: Should You Hold?

On Apr 6, we issued an updated research report on Comerica Incorporated CMA. The company continues to gain from revenue-enhancing initiatives and controlled expenses, while lack of loan portfolio diversification and a significant exposure to certain challenging economies remain near-term headwinds.

The Zacks Consensus Estimate for the company’s current-year earnings has been revised 1.9% upward, over the past 30 days. The stock currently carries a Zacks Rank #3 (Hold).

Shares of Comerica have surged 69.7% in the past six months, outpacing the industry’s 53.9% rally.

Having witnessed continued organic growth in the past few years, the company remains focused on achieving robust revenue growth rates in the days to come as well. Given the company’s competence in implementing strategic initiatives, it has the potential to generate sturdy income. Also, in a gradually recovering economy, the company’s loan balance is anticipated to show improvement, thereby driving net interest income growth.

Despite ongoing investments in technology and other expenses, Comerica’s non-interest expenses witnessed a negative five-year CAGR of 1.9% (ended 2020) due to the GEAR Up initiatives. Such controlled expenses will likely aid bottom-line expansion. Moreover, management anticipates declining expenses in first-quarter 2021, due to probable lower deferred compensation and pension expenses, seasonal reduction in occupancy, staff insurance and advertising.

However, Comerica still derives a significant part of its total revenues from California and Michigan, where the economic environment has continued to be increasingly arduous for the past few years. Though the environment has been witnessing certain visible improvements, any major turnabout remains ambiguous, thereby impeding considerable earning generation from these regions.

Further, a bulk of Comerica’s loan portfolio — nearly 81% as of Dec 31, 2020 — comprises commercial and commercial mortgage loans. Such a lack of diversification can be precarious for the company amid a challenging economy.

Stocks to Consider

Better-ranked stocks in the financial space include Summit Financial Group, Inc. SMMF and United Bankshares, Inc. UBSI, which presently carry a Zacks Rank #2 (Buy), while Fifth Third Bancorp FITB flaunts a Zacks Rank of #1 (Strong Buy), currently. You can see the complete list of today’s Zacks #1 Rank stocks here.

Summit Financial has witnessed 3.4% upward earnings estimate revision for the current year in the past 30 days. Moreover, its shares have gained 59.3% in the past six months.

United Bankshares’ current-year earnings estimate has been revised 3.4% upward over the past 30 days. Further, its shares have surged 58.8% in six months’ time.

Fifth Third Bancorp’s ongoing-year earnings estimate has moved 5.6% north in 30 days’ time. Also, its share price has rallied 64.4% in six months’ time.

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