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Comerica Stock Touches 52-Week High: Is It Worth Considering?
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Comerica Incorporated‘s (CMA - Free Report) shares have touched a 52-week high of $61.84 on Monday. The stock closed the session a tad lower at $60.20, rising 18.8% in the past six months.
The stock has outperformed the industry and its peers KeyCorp (KEY - Free Report) , and Northern Trust Corp. (NTRS - Free Report) in the same time frame.
Six-Months Price Performance
Image Source: Zacks Investment Research
Driving Factors Behind Comerica’s New 52-Week High
A major factor for this upward movement of CMA stock can be attributed to the Federal Reserve’s aggressive start to monetary policy easing.
Last week, the central bank cut the interest rates by 50 basis points, bringing the Fed fund rates to the 4.75-5% range. The central bank also indicated two more rate cuts this year, which will bring the Fed funds rate down to 4.4% in 2024.
This marks the end of the aggressive monetary policy adopted by the Fed to control decades-high inflation numbers. The central bank took this step with the inflation cooling down and resulting in a slowdown in the labor market.
The interest rate cut is a positive development for banks, including NTRS, KEY and CMA. These banks have been reeling under increasing funding cost pressure. While higher rates have led to a significant jump in banks’ net interest revenues (NIR), the same led to increased funding costs, which dented margins.
The metric witnessed a four-year CAGR of 1.8% (ended 2023). NIM also has steadily expanded in the past few years. In 2023, NIM was 3.06%, rising from 3.02% in 2022 and 2.21% in 2021. NII and NIM declined in the first half of 2024 due to high funding costs.
So now that the Fed has cut rates, funding costs are expected to gradually stabilize/come down, supporting Comerica’s NII and margins over time.
Does CMA Have More Room to Run?
Improving Operational Efficiency: Its focus on improving operational efficiency and reinvesting in strategic growth, will drive future earnings power. The company had closed numerous banking centers and realigned corporate facilities. It has streamlined managerial layers, eliminated positions and made efforts for product optimization. Execution of these initiatives will reduce expenses and improve return on equity (ROE). The company’s ROE of 15.01% compared favorably with 11.78% of the industry, reflecting its superiority in terms of utilizing shareholders’ funds. Also, its efforts in product enhancements, improvement in sales tools and training and improved customer analytics bode well for robust revenue growth.
Strong Liquidity Profile: It has a solid liquidity profile. As of June 30, 2024, the company’s total debt (comprising short-term borrowings and medium- and long-term debt) aggregated $7.7 billion. The company’s total liquidity capacity was $41.4 billion as of the same date. It also has a $17.4-billion capacity remaining in its discount window. The company enjoys senior long-term investment-grade credit ratings of A-, BBB and Baa1 from Fitch, Standard & Poor’s and Moody’s, respectively. This renders it favorable access to debt at attractive rates. Decent cash levels, favorable borrowing capacity and a staggered debt maturity profile offer it decent financial flexibility and make debt repayments seem manageable.
Loan Growth: Comerica’s income-generation capability remains robust, given its loan growth. Total loans were registered at a four-year compound annual growth rate (CAGR) of nearly 1% (ended 2023). Although the metric declined in the first half of 2024 due to balance sheet optimization, a robust loan pipeline will support growth in the upcoming quarters. In 2023, the company exited the mortgage finance business due to funding pressures and reduced profitability. Though CMA’s exit from the mortgage finance business will put pressure on loan growth, the current improving lending scenario will keep the growth trend stable in the coming quarters.
Is CMA Stock Worth Considering?
In the past 30 days, the Zacks Consensus Estimate for 2024 and 2025 earnings per share has moved upward. This upward adjustment reflects a positive sentiment among analysts and suggests encouraging prospects.
Estimate Revision Trend
Image Source: Zacks Investment Research
Comerica’s efforts to improve operating efficiency, a strong liquidity profile, along with the Fed’s recent rate cut, are set to support CMA’s financials in the upcoming period.
However, CMA’s shares appear expensive relative to the industry. The company is currently trading at the price-to-earnings (P/E) F12M of 11.63X, above the industry’s 11.49X.
Image: Shutterstock
Comerica Stock Touches 52-Week High: Is It Worth Considering?
Comerica Incorporated‘s (CMA - Free Report) shares have touched a 52-week high of $61.84 on Monday. The stock closed the session a tad lower at $60.20, rising 18.8% in the past six months.
The stock has outperformed the industry and its peers KeyCorp (KEY - Free Report) , and Northern Trust Corp. (NTRS - Free Report) in the same time frame.
Six-Months Price Performance
Driving Factors Behind Comerica’s New 52-Week High
A major factor for this upward movement of CMA stock can be attributed to the Federal Reserve’s aggressive start to monetary policy easing.
Last week, the central bank cut the interest rates by 50 basis points, bringing the Fed fund rates to the 4.75-5% range. The central bank also indicated two more rate cuts this year, which will bring the Fed funds rate down to 4.4% in 2024.
This marks the end of the aggressive monetary policy adopted by the Fed to control decades-high inflation numbers. The central bank took this step with the inflation cooling down and resulting in a slowdown in the labor market.
The interest rate cut is a positive development for banks, including NTRS, KEY and CMA. These banks have been reeling under increasing funding cost pressure. While higher rates have led to a significant jump in banks’ net interest revenues (NIR), the same led to increased funding costs, which dented margins.
The metric witnessed a four-year CAGR of 1.8% (ended 2023). NIM also has steadily expanded in the past few years. In 2023, NIM was 3.06%, rising from 3.02% in 2022 and 2.21% in 2021. NII and NIM declined in the first half of 2024 due to high funding costs.
So now that the Fed has cut rates, funding costs are expected to gradually stabilize/come down, supporting Comerica’s NII and margins over time.
Does CMA Have More Room to Run?
Improving Operational Efficiency: Its focus on improving operational efficiency and reinvesting in strategic growth, will drive future earnings power. The company had closed numerous banking centers and realigned corporate facilities. It has streamlined managerial layers, eliminated positions and made efforts for product optimization. Execution of these initiatives will reduce expenses and improve return on equity (ROE). The company’s ROE of 15.01% compared favorably with 11.78% of the industry, reflecting its superiority in terms of utilizing shareholders’ funds. Also, its efforts in product enhancements, improvement in sales tools and training and improved customer analytics bode well for robust revenue growth.
Strong Liquidity Profile: It has a solid liquidity profile. As of June 30, 2024, the company’s total debt (comprising short-term borrowings and medium- and long-term debt) aggregated $7.7 billion. The company’s total liquidity capacity was $41.4 billion as of the same date. It also has a $17.4-billion capacity remaining in its discount window. The company enjoys senior long-term investment-grade credit ratings of A-, BBB and Baa1 from Fitch, Standard & Poor’s and Moody’s, respectively. This renders it favorable access to debt at attractive rates. Decent cash levels, favorable borrowing capacity and a staggered debt maturity profile offer it decent financial flexibility and make debt repayments seem manageable.
Loan Growth: Comerica’s income-generation capability remains robust, given its loan growth. Total loans were registered at a four-year compound annual growth rate (CAGR) of nearly 1% (ended 2023). Although the metric declined in the first half of 2024 due to balance sheet optimization, a robust loan pipeline will support growth in the upcoming quarters. In 2023, the company exited the mortgage finance business due to funding pressures and reduced profitability. Though CMA’s exit from the mortgage finance business will put pressure on loan growth, the current improving lending scenario will keep the growth trend stable in the coming quarters.
Is CMA Stock Worth Considering?
In the past 30 days, the Zacks Consensus Estimate for 2024 and 2025 earnings per share has moved upward. This upward adjustment reflects a positive sentiment among analysts and suggests encouraging prospects.
Estimate Revision Trend
Image Source: Zacks Investment Research
Comerica’s efforts to improve operating efficiency, a strong liquidity profile, along with the Fed’s recent rate cut, are set to support CMA’s financials in the upcoming period.
However, CMA’s shares appear expensive relative to the industry. The company is currently trading at the price-to-earnings (P/E) F12M of 11.63X, above the industry’s 11.49X.
P/E F12M
Considering its expensive valuation, prospective investors can keep this Zacks Rank #3 (Hold) stock on their radar and can wait for a better entry point. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.