Driving Revenue Growth Through Decisive Investments And Robust Net Interest Management

Key Takeaways

• Strong deposit growth and strategic interest management indicate potential for increased net interest margins and future earnings growth.
  
• Strategic investments in environmental services and effective expense management position Comerica for positive future revenue and profitability.
  
• High inflation, interest rates, and deposit competition threaten loan demand, liquidity, and profitability, impacting Comerica's revenue and growth prospects.

Catalysts

Through its subsidiaries, provides various financial products and services.

• Comerica has seen strong customer activity resulting in higher average deposits and strong net interest income, suggesting potential future growth in revenue and profitability as customer confidence increases and rates adjust further.
  
• Continued improvements in deposit growth driven by favorable customer deposit trends and strategic management of interest-bearing accounts could enhance future net interest margins and earnings, even as the bank repurchases brokered CDs.
  
• Comerica’s Environmental Services business, particularly with its renewables team, is positioned for continued growth due to strategic investments and talent, likely impacting future revenue positively as this market expands.
  
• The strategic focus on managing expenses, coupled with successful capital management, including planned share repurchases, indicates potential for improved operating leverage and future earnings growth.
  
• Effective interest rate management through strategic swaps and a slightly liability-sensitive position suggests potential protection and stability in net interest income despite shifts in the rate curve, supporting future profitability.

Comerica Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Comerica's revenue will grow by 3.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 16.9% today to 22.7% in 3 years time.
• Analysts expect earnings to reach $797.0 million (and earnings per share of $6.29) by about November 2027, up from $535.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $913.0 million in earnings, and the most bearish expecting $703 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 13.0x on those 2027 earnings, down from 16.7x today. This future PE is greater than the current PE for the US Banks industry at 12.8x.
• Analysts expect the number of shares outstanding to decline by 1.23% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.48%, as per the Simply Wall St company report.

Comerica Future Earnings Per Share Growth

Risks

• Persistent high inflation and elevated interest rates have been pressuring loan demand, potentially affecting future revenue growth.
  
• The projected decline in 2024 average loans indicates challenges in generating loan growth, which could impact net interest income negatively.
  
• Potential reductions in broker time deposits may lead to a decrease in average deposit levels, affecting liquidity and overall net interest income.
  
• Competition and pressure on deposit pricing may lead to higher costs of funds, impacting net interest margins and profitability.
  
• The uncertainty surrounding the transition of the Direct Express program could pose risks to deposit balances and noninterest income, affecting revenue stability.

Valuation

• The analysts have a consensus price target of $68.11 for Comerica based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $80.0, and the most bearish reporting a price target of just $57.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $3.5 billion, earnings will come to $797.0 million, and it would be trading on a PE ratio of 13.0x, assuming you use a discount rate of 6.5%.
• Given the current share price of $67.77, the analyst's price target of $68.11 is 0.5% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.