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Comerica (CMA) Stock Surges 38% YTD: Is More Upside Left?

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Shares of Comerica Incorporated CMA have jumped 38% year to date, outperforming the industry’s rally of 32%. The stock has also surpassed the S&P 500’s rally of 10.1% in the same time frame.

Notably, the recent price movement of this Zacks Rank #3 (Hold) stock compares favorably with the disappointing 2020 performance. The company’s shares lost 22.2% last year, mainly owing to the coronavirus outbreak.

The gradually improving economy, stimulus payments and easing of lockdown-related norms, along with Comerica’s several efforts to improve efficiency, supported growth. Further, the company’s stellar performance might continue on the back of expectations of further improvement in economic conditions.

Let’s check out some of the key factors that are likely to support steady price appreciation for Comerica.

Year to Date Performance

Revenue Growth: Given a steady improvement in net interest income, total revenues of Comerica witnessed a five-year CAGR of 1.5% (2016-2020). Furthermore, the company’s income-generation capability, given the implementation of strategic initiatives, is encouraging.

Notably, management expects non-interest income to benefit from increases in service charges on deposit accounts, fiduciary income and commercial loan fees.

Gear-Up Initiatives: Comerica’s focus on improving operational efficiency led to the introduction of GEAR Up initiatives in mid-2016. Since the implementation of the initiative, the bank has consolidated 38 banking centers, reduced retirement plan expenses significantly and retrenched around 800 employees, among others.

Further, with the initiatives, the company remains on track to generate higher revenues through product enhancements, enhanced sales tools and improved customer analytics to drive opportunities.

Declining Expenses: Comerica’s non-interest expenses saw a negative CAGR of 1.9% over the five years (ended 2020). The same is likely to remain under control with support from the GEAR Up initiatives. Such controlled expenses are expected to aid bottom-line expansion.

Earnings Strength: Comerica’s earnings have witnessed a 12.2% rise in the past three-five years compared with the industry’s 6.9% growth. The momentum is anticipated to continue in the quarters ahead. The company’s long-term (three-five years) expected earnings growth rate of 27% promises rewards for shareholders.

Impressive Capital Deployment: Comerica is actively involved in capital-deployment activities. In January 2020, the board of directors hiked the quarterly dividend by 1.5%. Also, on Apr 27, 2021, the board approved an additional share buyback plan, with authorization to repurchase up to 10 million shares. This authorization is in addition to the 4.9 million shares repurchase capacity that remained outstanding as of Mar 31, 2021.

Driven by a strong liquidity position and consistently improving earnings, the company’s capital-deployment activities look sustainable. This is expected to further enhance shareholder value.

Strong Leverage: The company’s debt/equity ratio is 0.37 compared with the industry’s 0.72. This reflects that it will be financially stable, even during adverse economic situations.

Superior Return on Equity: Comerica has a return on equity of 11.74% compared with the industry average of 10.65%. This indicates that the company is slightly more efficient in utilizing shareholder funds.

Key Picks

JPMorgan Chase JPM has witnessed a 22.1% upward estimate revision over the past 60 days. The company’s shares have rallied 26.7% so far this year. It carries a Zacks Rank #2 (Buy) at present.

KeyCorp’s KEY shares have gained 39.5% so far this year. Further, the company’s earnings estimates for the ongoing year have moved 16.8% north in the past 60 days. It currently has a Zacks Rank of 2.

UMB Financial Corporation UMBF has witnessed 26.2% upward estimates revision for the current-year over the past 60 days. Shares of this Zacks #2 Ranked stock have gained 40.9% so far this year.

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