Analysts' Choice: Fed Helps Comerica Rev Growth Engine

8/28/2017


  Recent Price
$70
  Dividend
$1.20
  Yield
1.7%
  P/E Ratio
17
  Shares (millions)
179
  Long-Term Debt as % of Capital
50%
  52-Week Price Range
$75.72 - $45.14

Shares of regional bank Comerica ($70; CMA) have generated a total return of 56% over the past year, outpacing the 21% average return for S&P 1500 regional banks. The stock has returned 3% in 2017, while its industry has averaged a 9% loss.

Despite that rally, Comerica shares trade at a reasonable 17 times trailing earnings, versus their industry average. At 15 times estimated 2017 profits, Comerica offers a 9% discount to its peer group.

Solid loan growth, improving credit quality, and cost-cutting efforts support the stock's recent momentum. The Federal Reserve's three rate hikes over the past nine months helped boost Comerica's net interest income 9% in the first half of 2017, despite some weakness in deposits. Additional rate hikes in the coming year should stoke the bank's future growth. Comerica, earning a Quadrix Overall score of 97, is rated Long-Term Buy.

Operations gain steam . . .

Formed in 1973, the Dallas-based regional bank operates primarily in Texas, Michigan, and California, while also running banking centers in Arizona, Florida, and Canada. Despite its concentrated geographic footprint, Comerica has a presence in seven of the 10 largest U.S. cities.

A bank that rarely makes acquisitions, Comerica modestly grew its business from 2012 to 2016, with annualized growth of 5% for earnings per share and 3% for revenue. But its operations are gaining momentum. Per-share profits more than doubled in the first half of the year, with sales climbing 8%. For the year, Comerica is expected to grow profits 54% on 10% higher revenue. Although the bank trimmed its full-year guidance for loan growth to 1%, down from 1% to 2%, management sounds upbeat about its prospects in future quarters.

Of the 79 regional banks in the S&P 1500 Index, Comerica is one of four to expand net interest margin, a measure of lending profitability, in seven straight quarters. And few banks have increased net interest margin by a wider amount during that stretch. Additionally, Comerica launched a comprehensive cost-cutting plan last year, resulting in noninterest expenses falling 6% in the first half of 2017. Comerica's profit margins and return on equity have turned sharply higher in recent quarters.

. . . And so does the dividend

In the years leading up to the financial crisis, Comerica committed 40% to 55% of earnings to the dividend, which frequently yielded about 4%. The bank currently has a modest payout ratio of 29% of earnings, equating to a yield of 1.7%. Comerica also plans to repurchase up to $605 million of stock through next June, representing 5% of outstanding shares and up 40% from a year earlier.

The bank is now accelerating efforts to rebuild its quarterly dividend, which topped out at $0.66 per share ($2.64 a year) in 2008. Comerica has raised its quarterly dividend twice this year, a 13% hike in the June quarter, followed by a 15% increase to $0.30 per share, payable Oct. 1. Comerica also bumped up its dividend twice last year, through a pair of 5% raises.

An annual report for Comerica Inc. is available at 1717 Main St., MC 6404, Dallas, Texas 75201; (214) 462-6831; www.comerica.com.

COMERICA
Quarter
Per-Share Earnings*
($)
Sales
Change
Quarterly
Price Range
($)
P/E Ratio
Range
Jun '17
1.15
vs.
0.77
9%
75.30
-
64.75
21 - 18
Mar '17
1.11
vs.
0.34
7%
75.00
-
64.27
26 - 2
Dec '16
0.92
vs.
0.64
3%
70.44
-
46.75
27 - 18
Sep '16
0.84
vs.
0.74
5%
47.81
-
38.39
19 - 15
           
Year
(Dec.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2016
2.96
2.68
0.89
70.44
-
30.48
26 - 11
2015
2.83
2.84
0.83
53.45
-
39.52
19 - 14
2014
2.62
3.16
0.79
53.50
-
42.73
17 - 14
2013
2.61
2.85
0.68
48.69
-
30.73
17 - 11
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
97
96
75
78
91
89
59

   * Earnings exclude special items.
   † Quadrix scores are percentile ranks, with 100 the best.


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