(CMA) Comerica Analyst Stays Neutral on Shares

We have reaffirmed our Neutral recommendation on Comerica Inc. (CMA) based on its fundamentals, stress test clearance and the subsequent capital deployment efforts as well as the current economic environment.

Fourth Quarter Results

Comerica Inc. reported fourth-quarter 2011 operating earnings of 60 cents per share. However, the reported earnings included 12 cents per share of merger and restructuring charges related to the acquisition of Sterling Bancshares Inc. After considering this expense, net income attributable to common shares came in at 48 cents per share, beating the Zacks Consensus Estimate of 46 cents.

Comerica’s results reflected a growth in net interest income and a decrease in loan loss provisions driven by an improvement in credit quality. However, a fall in non-interest income and a rise in expenses were on the downside.

Capital Deployment Initiatives

Comerica’s capital deployment initiatives through dividend payment and share buybacks exhibit its capital strength. Following the Federal Reserve’s consent to its capital plan in March 2012, the company announced plans for up to $375 million in equity repurchases for the period beginning in the first quarter of 2012 and ending in the first quarter of 2013.

Further, the company contemplates a 50% hike in its quarterly dividend to 15 cents per share from 10 cents. The board will consider the dividend proposal at its April 24, 2012 meeting.

Notably, the company had bought back 4.1 million shares in 2011 for a total of $110 million. This, combined with dividends, resulted in a total payout of 47% of 2011 net income to shareholders. We expect such activities to give a fillip to investors’ confidence in the stock.

Besides Comerica, other Wall Street banks such as JPMorgan Chase & Co. (JPM), Wells Fargo & Company (WFC) and U.S. Bancorp (USB) have also increased their dividends and share buybacks following the Fed’s approval to their capital plans.

First Quarter and Full Year 2012 EPS Estimates

Comerica is scheduled to report its first quarter results on April 17, 2012. Currently, according to the Zacks Consensus Estimate, the company is expected to report earnings of 55 cents per share in the first quarter and $2.32 per share in full year 2012.

Going Forward

Going forward, we believe that continuous geographic diversification beyond the company’s traditional and slower-growing Midwest markets could drive growth over the next cycle. Revenue synergies from the Sterling acquisition should augment its top-line growth.

We also remain encouraged by Comerica’s profit improvement plan that focuses on revenue enhancements and expense reduction initiatives. Moreover, we believe that the company’s current capital position allows sufficient scope for further capital deployment.

Yet the company’s significant exposure to riskier areas such as commercial real estate markets, unsettled economic environment and low interest rate are concerns. Regulatory issues also remain headwinds. The financial reform law is likely to cap the company’s profitability from increased costs and fee restrictions. Moreover, stringent capital requirements will somewhat limit the company’s flexibility with regard to business investments.

Hence, the risk-reward profile seems balanced for the Comerica stock. Moreover, shares of Comerica currently carry a Zacks #3 Rank, which translates into a short-term Hold rating.

COMERICA INC (CMA): Free Stock Analysis Report

JPMORGAN CHASE (JPM): Free Stock Analysis Report

US BANCORP (USB): Free Stock Analysis Report

WELLS FARGO-NEW (WFC): Free Stock Analysis Report

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