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Comerica (CMA) to Report Q3 Earnings: What's in the Cards?

Comerica Incorporated CMA is scheduled to report third-quarter 2021 results before the opening bell on Oct 20. The bank’s revenues and earnings are likely to have registered year-over-year growth.

The company’s second-quarter 2021 results were supported by lower provisions and a strong fee income growth.  However, decline in loans and higher expenses were the undermining factors.

Notably, Comerica has an impressive earnings surprise history. It surpassed estimates in all of the trailing four quarters, delivering an earnings surprise of 51.99%, on average.

Comerica Incorporated Price and EPS Surprise

Comerica Incorporated price-eps-surprise | Comerica Incorporated Quote

The Zacks Consensus Estimate for the third-quarter earnings is pegged at $1.68, which suggests a 16.7% increase from the year-ago reported number. Also, the consensus estimate for revenues of $733.4 million indicates a 3.3% jump.

Factors at Play

Fee Income: During the third quarter, the deposit balance is likely to have been stable or grown modestly, supported by the government stimulus. Also, deposit service charges are expected to have continued to normalize as the pandemic-related concessions keep reducing. These are likely to have driven higher revenues from service charges on deposits.

Also, consumer spending remained decent in the third quarter, resulting in the usage of debit/credit cards and merchant payment-processing services. Thus, card fees (a major contributor to fee income in second quarter of 2021) might have lent support to the company’s top line during the to-be-reported quarter. The Zacks Consensus Estimate for card fees of $75 million calls for a rise of 5.6%, year over year.

The consensus estimate of $271 million for overall fee income suggests a 7.5% year-over-year rise.

Net Interest Income (NII): Overall growth in loans was moderate in the third quarter. Per the Fed’s latest data, the lending scenario was soft with weak home equity, and commercial and industrial loans. Conversely, the real estate, commercial real estate as well as consumer loan portfolios are anticipated to have offered support.

The steepening of the yield curve (the difference between short- and long-term interest rates) is likely to have supported the bank’s net interest margin (NIM). Though the yield on the 10-year U.S. Treasury Bond of 1.49% at the end of September was relatively stable on a sequential basis, the figure expanded 57 basis points from 0.92% at the end of 2020. Thus, the NII will likely get some support.

Excess liquidity, low loan yields, and low reinvestment rates on securities might have put strained the earning asset yields. However, low deposit costs are expected to have been the offsetting factor.

The Zacks Consensus Estimate of $85.5 billion for the quarterly average interest earning assets indicates a 6.3% year-over-year improvement, and the estimate for NII suggests year-over-year 1.3% growth to $464 million.

Expenses: Its GEAR Up initiatives are aimed at keeping the company’s expenses under control. However, some impacts of technological investments and restructuring charges are likely to have prevailed.

Management projects non-interest expenses to decrease on lower litigation-related expenses and deferred compensation, partially offset by rise in seasonal expenses and technology investments.

Asset Quality:  The vaccine roll-outs and additional market reopenings throughout the third quarter have infused optimism regarding the economic and GDP rebound. Hence, significant reserves (built due to the deterioration in the macroeconomic backdrop last year) are likely to have continued being released in the third quarter similar to the previous quarter.

The consensus mark for non-performing assets is pegged at $319 million for the to-be-reported quarter, calling for a 4.8% decrease from the prior-year period. Also, the consensus estimate for non-performing loans of $317 million suggests a 2.5% fall.

Now, let’s have a look at what our quantitative model predicts:

The chances of Comerica beating the Zacks Consensus Estimate in the third quarter are less. This is because it doesn’t have the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing 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 -2.21%.

Zacks Rank: Comerica currently carries a Zacks Rank #3.

Stocks to Consider

Here are some finance stocks that you may want to consider as these have the right combination of elements to post an earnings beat in their upcoming releases, per our model.

Fifth Third Bancorp FITB is slated to report quarterly earnings on Oct 19. The company, which carries a Zacks Rank of 2 (Buy) at present, has an Earnings ESP of +0.46%.You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

BankUnited, Inc. BKU is scheduled to release third-quarter results on Oct 21. The company currently carries a Zacks Rank #3 and has an Earnings ESP of +1.90%.

Capital One Financial Corporation COF is slated to report quarterly earnings on Oct 26. The company, holding a Zacks Rank of 2 at present, has an Earnings ESP of +5.18%.

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