Expansion Into Southeast And Mountain West Markets Will Strengthen Future Performance

Key Takeaways

• Strategic reductions in brokered deposits could improve net interest income through efficient funding.
  
• Expanding into growth markets and talent acquisition may drive long-term revenue growth.
  
• Elevated interest rates and strategic expenses may pressure profitability and credit quality, while liquidity challenges could impact loan growth and shareholder value.

Catalysts

Through its subsidiaries, provides various financial products and services.

• Comerica is strategically reducing high-cost brokered deposits, which could improve net interest income through a more efficient funding mix.
  
• The bank expects to close 2025 with flat to slightly up average loans, supported by strong customer pipelines, potentially driving revenue growth.
  
• Comerica's ongoing investment in relationship managers and wealth management advisors aims to enhance fee income, boosting noninterest income.
  
• Share repurchases are planned, which may enhance earnings per share if ongoing buybacks are executed strategically with excess capital.
  
• Expansion into growth markets like the Southeast and Mountain West, alongside talent acquisition, could drive long-term revenue growth.

Comerica Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Comerica's revenue will grow by 4.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 21.0% today to 22.0% in 3 years time.
• Analysts expect earnings to reach $794.9 million (and earnings per share of $6.34) by about January 2028, up from $671.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 13.1x on those 2028 earnings, up from 12.4x today. This future PE is greater than the current PE for the US Banks industry at 12.3x.
• Analysts expect the number of shares outstanding to decline by 1.56% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.6%, as per the Simply Wall St company report.

Comerica Future Earnings Per Share Growth

Risks

• Persistent inflation and elevated interest rates could pressure customer profitability and drive normalization in criticized and nonperforming loans, potentially impacting credit quality and net margins.
  
• The ongoing reduction of brokered deposits and high-cost funding sources could challenge liquidity management and net interest income if loan growth remains weak and customer deposit growth does not materialize as expected.
  
• Anticipated commercial real estate payoffs, particularly if interest rates rise, may continue to offset growth in other business areas, limiting overall loan growth and potentially impacting revenue generation.
  
• Legal and litigation-related expenses, along with strategic decisions like increased charitable contributions, may exert pressure on overall noninterest expenses and impact net earnings if not balanced by corresponding revenue increases.
  
• The anticipated continued AOCI losses and their effect on capital ratios could limit flexibility in capital management decisions such as share repurchases, affecting shareholder value and potentially net earnings per share.

Valuation

• The analysts have a consensus price target of $68.6 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 $59.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $3.6 billion, earnings will come to $794.9 million, and it would be trading on a PE ratio of 13.1x, assuming you use a discount rate of 6.6%.
• Given the current share price of $63.53, the analyst's price target of $68.6 is 7.4% 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.