Comerica: Financial Winner

NEW YORK ( TheStreet) -- Comerica ( CMA) was the winner among the largest U.S. banks on Thursday, with shares rising 1.5% to close at $34.38.

The broad indices all faded late to end the session with slight declines, after the Bureau of Economic Analysis released its second estimate on fourth-quarter gross domestic product, showing that the U.S. economy expanded at an annual rate of 0.1%. The GDP growth figure was revised from the previous estimate of a negative growth rate of 0.1%. The consensus among economists was for the revised GDP growth rate to come in at 0.5%, according to Zacks.

The Labor Department said initial unemployment claims for the week ended Feb. 23 were 344,000, a decrease of 22,000 from the previous week's upwardly revised 366,000. The four-week moving average was 355,000, a decline of 6,750 from the previous week's 361,750.

Continuing claims for the week ended Feb. 16 were 3.074 million, down 91,000 from the preceding week's upwardly revised level of 3.165 million.

In other U.S. economic news on Thursday, the Chicago Purchasing Managers Index rose to 56.8 in February from 55.6 in January.

The KBW Bank Index ( I:BKX) was down slightly to close at 53.98.


Shares of Comerica of Dallas have now returned 13% this year, following a 20% return during 2012. The shares trade for just above tangible book value, according to Thomson Reuters Bank Insight, and for 12.3 times the consensus 2014 earnings estimate of $2.79 a share, among analysts polled by Thomson Reuters. The consensus 2013 EPS estimate is $2.76.

Based on a quarterly payout of 17 cents, the shares have a dividend yield of 1.98%.

A major concern for Comerica's investors coming out of fourth-quarter earnings season was the narrowing of the company's net interest margin (NIM), which is the spread between the average yield on loans and investments and the average cost for deposits and borrowings. The company's fourth-quarter NIM was 2.87%, declining from 2.96% the previous quarter, and 3.19% a year earlier.

Loan growth was insufficient to offset the narrowing margin, as fourth-quarter net interest income declined to $424 million from $427 million in the third quarter and $444 million in the fourth quarter of 2011.

The Federal Reserve has kept its short-term federal funds rate in a range of between zero and 0.25% since late 2008. The central bank has also been expanding its balance sheet in an effort to hold long-term rates at historically low levels. Comerica has already enjoyed most of the benefit on the low rates on the cost side, but its assets continue to reprice at lower rates.

The rising yield for 10-year U.S. Treasuries over the past three months has provided some hope for the margin. But Comerica provided guidance for 2013, saying that it expected its net interest income to continue declining this year, with a further narrowing of the margin partially offset by loan growth.

Stifel Nicolaus analyst Christopher Mutascio -- who has since been transferred to KBW's analyst team, after Stifel completed its acquisition of KBW on Feb. 15 -- downgraded Comerica to a "sell" rating from a "buy" rating on Feb. 11. The analyst said in a report that Comerica's stock was "trading at a 25% premium to the rest of our large-cap bank coverage universe despite having one of the lowest projected returns on average assets (ROA)" for 2014.

The analyst added that "with approximately 72% of the company's earning assets tied to the short-end of the yield curve (not the long end), we believe the market is way ahead of itself in assuming just how much the company benefits from the recent rise in long-term interest rates."

Comerica's 2012 ROA (Return on Assets) was 0.81%. Mutascio estimates that Comerica's 2014 ROA will be 0.75%, with EPS of $2.85.

CMA Chart CMA data by YCharts

Interested in more on Comerica? See TheStreet Ratings' report card for this stock.

-- Written by Philip van Doorn in Jupiter, Fla.

>Contact by Email.


Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

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