Why Is Comerica Incorporated (CMA) Up 8.3% Since Last Earnings Report?
It has been about a month since the last earnings report for Comerica Incorporated (CMA). Shares have added about 8.3% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Comerica Incorporated due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Comerica Q3 Earnings Beat, Revenues & Costs Rise Y/Y
Comerica reported third-quarter earnings per share of $2.60, beating the Zacks Consensus Estimate of $2.57. The bottom line reflects a rise of 36.8% from the prior-year quarter.
Results have been primarily aided by increased NII, supported by higher interest rates and loan growth. However, a decline in non-interest income, higher expenses and increased provisions were the undermining factors.
Net income attributable to common shares was $343 million, up 34.5% year over year.
Revenues Improve, Expenses Rise
Total revenues were $985 million, up 30.5% year over year. Further, the top line beat the consensus estimate of $961.5 million.
NII increased 48.8% on a year-over-year basis to $707 million. NIM rose 127 basis points (bps) year over year to 3.50%.
Total non-interest income was $278 million, down 1% on a year-over-year basis. The decrease was due to a fall in card fees, commercial lending fees and other non-interest income.
Non-interest expenses totaled $502 million, up 8% year over year. The rise was due to an increase in salaries and benefits expenses, occupancy expenses, FDIC insurance expenses and other non-interest expenses.
The efficiency ratio was 50.75% compared with the prior-year quarter’s 61.13%. A decrease in the ratio indicates higher profitability.
Balance Sheet Position Robust
As of Sep 30, 2022, total assets and shareholders' equity were $84.14 billion and $5.07 billion, respectively, compared with $86.89 billion and $6.44 billion, as of Jun 30, 2022.
Total loans increased marginally on a sequential basis to $51.71 billion. However, total deposits declined 3.6% from the prior quarter to $73.02 billion.
Credit Quality: Mixed Bag
Total non-performing assets decreased 11.5% year over year to $262 million. The allowance for credit losses was $624 million, down 2.3% from the prior-year quarter. The allowance for credit losses to total loans ratio was 1.21% as of Sep 30, 2022, down from 1.33% as of Sep 30, 2021.
However, the company recorded net credit-related charge-offs of $13 million for the quarter under review, up from $2 million in the prior-year quarter. A provision for credit losses of $28 million was recorded in the reported quarter against a benefit of $42 million in the prior-year quarter.
Capital Position Weakens
As of Sep 30, 2022, Comerica’s tangible common equity ratio was 4.82%, down from 7.20% in the prior-year quarter. The total capital ratio was 12.40%, declining from 12.57% in the year-ago quarter.
Common Equity Tier 1 (CET1) capital ratio was 9.92%, falling from 10.27% in the prior-year quarter.
Outlook
Fourth-Quarter 2022
The expectations are on a sequential basis.
Average loans are expected to grow 1%. Average deposits are expected to decline 5%.
NII is anticipated to increase 4-5%, while fee income is expected to decrease 3%. Non-interest expenses are estimated to rise 2-3%.
2022
Average loans (excluding PPP) are expected to grow 7%. Average deposits are expected to decline 3%.
NII is expected to jump more than 33% year over year. Non-interest income is likely to decline 6%. Non-interest expenses are estimated to rise 5%.
CET1 is targeted to be 10%. The tax rate for 2022 is anticipated to be 22-23%, excluding discrete items.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
VGM Scores
At this time, Comerica Incorporated has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Comerica Incorporated has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Comerica Incorporated belongs to the Zacks Banks - Major Regional industry. Another stock from the same industry, Wells Fargo (WFC), has gained 5.4% over the past month. More than a month has passed since the company reported results for the quarter ended September 2022.
Wells Fargo reported revenues of $19.51 billion in the last reported quarter, representing a year-over-year change of +3.6%. EPS of $1.30 for the same period compares with $1.17 a year ago.
Wells Fargo is expected to post earnings of $1.28 per share for the current quarter, representing a year-over-year change of -7.3%. Over the last 30 days, the Zacks Consensus Estimate has changed +0.4%.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Wells Fargo. Also, the stock has a VGM Score of B.
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