NEW YORK (
) -- Stifel Nicolaus analyst Christopher Mutascio on Friday downgraded Comerica to a "Sell" rating, citing "the lack of earnings catalysts and the high P/E multiples".
Comerica's shares closed at $33.10 Thursday, returning 30% year-to-date, following a 38% decline during 2011.
The shares trade just above their reported June 30 tangible book value of $32.76, and for 12 times the consensus 2013 EPS estimate of $2.70, among analysts polled by Thomson Reuters. The consensus 2012 EPS estimate is $2.68. Based on a quarterly payout of 15 cents, the shares have a dividend yield of 1.81%.
While the shares are cheaply priced to book value, considering that the Dallas lender improved its second-quarter operating return on average assets to 0.93%, from 0.84% the previous quarter, and 0.70% a year earlier, according to Thomson Reuters Bank Insight, Mutascio said the price-to-earnings multiple is high even to his "normalized" earnings estimate of three dollars a share.
"The downgrade is not an indictment on management," Mutascio said, adding that "in fact, we believe management has done an admirable job in navigating the company through the financial crisis and the ensuing challenging operating environment."
Comerica reported second-quarter net income attributable to common shares of $142 million, or 73 cents a share, improving from $129 million, or 66 cents a share, in the first quarter, and $95 million, or 53 cents a share, during the second quarter of 2011. The second-quarter bottom line was boosted by a $37 million release of loan loss reserves. Comerica had released $22 million in reserves the previous quarter, and $43 million a year earlier.
Comerica had $62.7 billion in total assets as of June 30. A major second-quarter highlight for the company was a 5% increase in average non-real estate (C&I) commercial loans, to $25.9 billion, while average total loans grew 2%, to $43.2 billion. This was Comerica's eighth straight quarter of commercial loan growth.
Despite the strong lending results, Comerica's net interest margin -- the spread between the average yield on loans and investments, and the average cost for deposits and borrowings -- declined to 3.10%, from 3.19% in the first quarter and 3.14% in the second quarter of 2011. Margins have been declining for most regional banks in the prolonged low-rate environment, and Thursday's announcement by the Federal Reserve Open Market Committee that the central bank would be attempting to bring long-term rates even lower, through the purchase of $85 billion in long-term mortgage-backed securities through the end of the year, will further pressure industry rate spreads.