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Comerica's Strategic Growth Initiatives Aid, Costs Increase

Zacks Equity Research

Comerica Incorporated CMA can be a solid bet now on the back of its focus on revenue enhancing initiatives, which will likely drive operational efficiency. Further, the company is expected to benefit from a strong capital position, easing margin pressure and loan growth in the near term. However, escalating expenses on technological developments remain a concern.

The company’s earnings estimates have remained stable at $8.23 for the current year over the past 30 days. As a result, the stock currently carries a Zacks Rank #3 (Hold).

Further, the stock has lost 25.1% over the past year compared with 11.1% decline recorded by the industry.

In mid-2016, Comerica launched Growth in Efficiency and Revenue Initiative or “GEAR Up” initiatives in order to drive revenue growth, reduce expenses and improve efficiency by identifying and analyzing areas with room for improvement. Notably, execution of these initiatives resulted in an efficiency ratio of under 54% in 2018. Further, such efforts are anticipated to deliver annual pre-tax income of $35 million in 2019 and beyond.

Moreover, the company’s interest income continues to benefit from higher rate environment and consistently increasing loans balance. Management expects average loan growth to be 2-4% in 2019. Also, net interest income is anticipated to increase 3-4%.

Comerica continues to enhance shareholders’ value through steady capital-deployment activities. In January 2019, the board of directors hiked the quarterly dividend by 12% and approved a plan to repurchase an additional 15 million in common shares. These activities seem sustainable, given the company’s strong capital position.

However, volatile non-interest expenses pose a concern. Though management expects expenses to decline in 2019, continued investment in technological developments might put some pressure on it.

Furthermore, Comerica’s significant exposure to commercial loans (nearly 64% of the total loans) and to challenging economies of California and Michigan, keeps us apprehensive.

Stocks to Consider

Some better-ranked stocks in the same space worth considering are BankUnited BKU, Northern Trust Corporation NTRS and Citigroup C. All these stocks carry a Zacks Rank #2 (Buy).

BankUnited’s Zacks Consensus Estimate for current-year earnings has been revised nearly 1% upward in the past 30 days.

Northern Trust’s current-year earnings estimates have been revised slightly upward over the past 30 days.

Citigroup’s Zacks Consensus Estimate for current-year earnings has been revised 2.3% upward over the past 60 days.

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