Comerica Incorporated (NYSE:CMA) can face challenges from the steadily rising non-interest expenses as they are likely to affect the company’s bottom-line growth. A lack of loan portfolio diversification may also be a concern in an uncertain economy and competitive markets. Despite these concerns, strong growth in loan balances can provide support in the near future. With ample liquidity, Comerica should be able to manage its debt repayments, and its capital deployment activities may be sustainable.
Comerica has seen non-interest expenses grow at a compound annual growth rate (CAGR) of 2.6% over the last five years (2018-2022). This trend has continued into the first quarter of 2023, mainly due to rising pension expenses. Comerica is expecting a further rise of 7% in expenses this year, mainly due to higher pension expenses. These rising costs may hinder the company’s profits in the coming quarters.
Comerica has a notable exposure to commercial and commercial mortgage loans, which made up 83.3% of its total loans in the first quarter of 2023. Such lack of diversification can be risky, especially in an uncertain economy and competitive markets.
Although Comerica is attempting to diversify its geographical footprint, it has a significant business exposure in California and Michigan, which have experienced challenging economic environments in recent years. If there are any economic or political issues in these markets in the future, it could adversely affect the company’s performance.
Comerica also has a higher debt/equity ratio, which stands at 1.26 compared to the industry average of 1.07. This suggests that it has a higher debt burden relative to its peers and may face difficulties in a dynamic business environment.
Analysts have revised their Zacks Consensus estimate for Comerica’s earnings downward by 1.9% and 2.1% for 2023 and 2024, respectively, over the past month. Comerica currently holds a Zacks Rank #4 (Sell). Shares of CMA have declined by 40.6% so far this year compared to the industry average of a 9.9% decline.
Despite these concerns, Comerica could benefit from higher interest rates, which should drive net interest income in the upcoming period. The company’s improving performance and decent liquidity also suggest that sustainable capital deployment activities are possible in the future.
Banks that are worth considering
Two better-ranked banking stocks are Mitsubishi UFJ Financial Group, Inc. (NYSE:MUFG) and Pathward Financial Inc. (NASDAQ:CASH), which both hold a Zacks Rank #2 (Buy).
Over the past 60 days, earnings estimates for MUFG have been revised upward by 1.3% for fiscal 2023. The company’s shares have increased by 23.5% over the past six months.
The consensus estimate for CASH’s fiscal 2023 earnings was revised upward by 1.8% over the past 30 days. Over the past six months, the company’s share price has increased by 5.9%.
