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Rise in NII & High Rates Aid Comerica (CMA), High Costs Hurt
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Comerica Incorporated’s (CMA - Free Report) top-line growth has been supported by high rates, increasing net interest income (NII) and a rise in loan balances. Also, decent liquidity ensures sustainable capital distributions. However, escalating expenses and a concentrated commercial loan portfolio are major headwinds.
CMA’s loan growth over the years has been impressive. Given the strength in its loan pipeline, a similar trend is expected to continue in the near term. Management estimates average loans to grow 8% in 2023.
Such loan growth has improved Comerica’s NII over the years, thus aiding its top-line growth. With expectations of Federal Reserve keeping interest rates high in the near term, NII and net interest margin are likely to continue witnessing growth, while a rise in funding costs will weigh on both. The company is projecting NII to rise 1-2% in 2023.
CMA’s focus on improving operational efficiency led to the introduction of GEAR Up initiatives in mid-2016, which resulted in an improvement in efficiency ratio and return on equity. Also, its efforts in product enhancements, improvement in sales tools and training as well as improved customer analytics bode well for robust revenue growth.
Further, Comerica has a solid liquidity profile given its decent cash levels, $20 billion capacity remaining in its discount window and favorable borrowing capacity compared with the company’s obligations. Hence, capital distributions seem sustainable. This is likely to stoke investors’ confidence in the stock.
However, an escalating cost base remains a concern for CMA. The company’s non-interest expenses have been rising over the years on an increase in salaries and benefits expenditure. Such rising costs are likely to hinder bottom-line growth. Management forecasts expenses to rise 9% in 2023.
Comerica has substantial exposure to commercial and commercial mortgage loans. Commercial lending may be impacted by rapid changes in the current macroeconomic backdrop, hurting CMA’s financials if the economic situation worsens.
Also, Comerica has a significant business exposure in California and Michigan where the economic environment has been increasingly challenging over the past few years. Going forward, any economic or political doldrums in these markets will likely affect the company’s performance.
Shares of this Zacks Rank #3 (Hold) bank have gained 12.7% in the past three months compared with the industry’s growth of 1.2%.
Image Source: Zacks Investment Research
Bank Stocks Worth a Look
A couple of better-ranked stocks from the banking space are Live Oak Bancshares, Inc. (LOB - Free Report) and Bank7Corp. (BSVN - Free Report) .
Live Oak currently sports a Zacks Rank #1 (Strong Buy). Its earnings estimate for 2023 has been revised 19.7% upward over the past 60 days. In the past three months, LOB’s shares have rallied 28.1%. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Bank7’s current-year earnings has been revised 7.4% upward over the past 60 days. Its shares have gained 4.9% in the past three months. Currently, BSVN carries a Zacks Rank #2 (Buy).
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Rise in NII & High Rates Aid Comerica (CMA), High Costs Hurt
Comerica Incorporated’s (CMA - Free Report) top-line growth has been supported by high rates, increasing net interest income (NII) and a rise in loan balances. Also, decent liquidity ensures sustainable capital distributions. However, escalating expenses and a concentrated commercial loan portfolio are major headwinds.
CMA’s loan growth over the years has been impressive. Given the strength in its loan pipeline, a similar trend is expected to continue in the near term. Management estimates average loans to grow 8% in 2023.
Such loan growth has improved Comerica’s NII over the years, thus aiding its top-line growth. With expectations of Federal Reserve keeping interest rates high in the near term, NII and net interest margin are likely to continue witnessing growth, while a rise in funding costs will weigh on both. The company is projecting NII to rise 1-2% in 2023.
CMA’s focus on improving operational efficiency led to the introduction of GEAR Up initiatives in mid-2016, which resulted in an improvement in efficiency ratio and return on equity. Also, its efforts in product enhancements, improvement in sales tools and training as well as improved customer analytics bode well for robust revenue growth.
Further, Comerica has a solid liquidity profile given its decent cash levels, $20 billion capacity remaining in its discount window and favorable borrowing capacity compared with the company’s obligations. Hence, capital distributions seem sustainable. This is likely to stoke investors’ confidence in the stock.
However, an escalating cost base remains a concern for CMA. The company’s non-interest expenses have been rising over the years on an increase in salaries and benefits expenditure. Such rising costs are likely to hinder bottom-line growth. Management forecasts expenses to rise 9% in 2023.
Comerica has substantial exposure to commercial and commercial mortgage loans. Commercial lending may be impacted by rapid changes in the current macroeconomic backdrop, hurting CMA’s financials if the economic situation worsens.
Also, Comerica has a significant business exposure in California and Michigan where the economic environment has been increasingly challenging over the past few years. Going forward, any economic or political doldrums in these markets will likely affect the company’s performance.
Shares of this Zacks Rank #3 (Hold) bank have gained 12.7% in the past three months compared with the industry’s growth of 1.2%.
Image Source: Zacks Investment Research
Bank Stocks Worth a Look
A couple of better-ranked stocks from the banking space are Live Oak Bancshares, Inc. (LOB - Free Report) and Bank7 Corp. (BSVN - Free Report) .
Live Oak currently sports a Zacks Rank #1 (Strong Buy). Its earnings estimate for 2023 has been revised 19.7% upward over the past 60 days. In the past three months, LOB’s shares have rallied 28.1%. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Bank7’s current-year earnings has been revised 7.4% upward over the past 60 days. Its shares have gained 4.9% in the past three months. Currently, BSVN carries a Zacks Rank #2 (Buy).