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Will Lower Revenues Affect Comerica's (CMA) Q4 Earnings?

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Comerica Incorporated CMA is scheduled to report fourth quarter and 2020 results before the opening bell on Jan 19. The bank’s revenues and earnings are likely to have witnessed a fall from the year-ago reported figures.

The company’s third-quarter results were supported by lower provisions. However, decline in revenues and higher expenses acted as headwinds.

Notably, Comerica has a decent earnings surprise history. The company's earnings surpassed the consensus estimate in three of the trailing four quarters and missed in one, with the positive surprise being 48.26%, on average.

Comerica Incorporated Price and EPS Surprise

Comerica Incorporated Price and EPS Surprise
Comerica Incorporated Price and EPS Surprise

Comerica Incorporated price-eps-surprise | Comerica Incorporated Quote

The Zacks Consensus Estimate for earnings for the fourth quarter is pegged at $1.21, which suggests a decline of 34.6% from the year-ago reported number. Also, the consensus estimate for sales of $703.7 million indicates a 13.1% year-over-year fall.

Factors at Play

Lower Net Interest Income (NII): A muted lending scenario, mainly in the commercial and real estate loans front (accounting for almost 89% of the company’s total loans and leases), is expected to have affected interest income during the quarter.

Also, the Fed continued to keep interest rates at near-zero level in order to shield the U.S. economy from the coronavirus outbreak-related mayhem. This is likely to have substantially hurt net interest margin and NII.

The Zacks Consensus Estimate for average earning assets of $78.6 billion for the quarter indicates 16% rise from year-ago quarter.

The Zacks Consensus Estimate of $456 million for NII suggests a 16.2% year-over-year fall.

The company expects NII to remain stable, as lower interest rates and reduced loan balances are likely to be partly offset by management of loan and deposit pricing, the full quarter benefit of the larger securities portfolio and lower wholesale funding.

Muted Fee Income: Decent consumer spending scenario on easing of lockdown measures is likely to have resulted in higher usage of debit/credit cards and merchant payment processing services. This might have favorably impacted card fees during the quarter. Thus, card fees (a major contributor to fee income) might have climbed in the to-be-reported quarter. The Zacks Consensus Estimate for card fees of $69 million implies a rise of 11.3% from the prior quarter’s reported figure.

However, Comerica’s fee income might have been hurt by lower service charges on deposit accounts on fall in deposits during the quarter. The consensus estimate for the same of $49 million indicates 2.2% fall from the previous quarter.

The consensus estimate of $248 million for fee income suggests a 6.8% sequential fall.

The company expects fee income to decline on lower card fees, partially mitigated by growth in several fee categories due to improving economic conditions.

Higher Expenses: Continuation of maintenance projects in the fourth quarter and seasonal taxes are expected to have resulted in an increase in occupancy costs.

Management expects costs to flare up due to higher expenses related to technology and seasonal impact of staff insurance.

Asset Quality: With sufficient reserve builds made by the company in the first half of the year owing to the worsening macroeconomic backdrop, the chances of substantial increase in provision for loan losses in the fourth quarter are less.

The consensus estimate for non-performing assets is pegged at $385 million for the to-be-reported quarter, which indicates a 79.1% increase from the prior-year quarter. Also, the consensus estimate for non-performing loans of $321 million suggests a 57.4% rise.

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

The chances of Comerica beating the Zacks Consensus Estimate in the fourth 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 -1.54%.

Zacks Rank: Comerica currently has 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.

The Earnings ESP for Bank of America BAC is +2.79% and the company carries a Zacks Rank of 3, at present. The company is slated to report quarterly results on Jan 19. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Truist Financial TFC is set to release earnings figures on Jan 21. The company, which carries a Zacks Rank of 3 at present, has an Earnings ESP of +3.18%.

The Earnings ESP for KeyCorp KEY is +3.19% and the company carries a Zacks Rank #3, currently. It is scheduled to report quarterly numbers on Jan 21.

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Comerica Incorporated (CMA) : Free Stock Analysis Report
 
Bank of America Corporation (BAC) : Free Stock Analysis Report
 
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