Why Hold Strategy is Suitable for Comerica (CMA) Stock Now

Comerica Incorporated CMA displays impressive organic growth and robust capital position. Also, it remains on track to further improve financials through GEAR Up initiatives. Moreover, with the economic and industry factors taking a favorable turn, additional support shall be lent to the company.

However, Comerica’s significant exposure to commercial loans and two of the challenging economies including California and Michigan remain major headwinds.

Given Comerica’s strong fundamentals, its shares have gained 28.7% year to date, outperforming industry’s growth of 18.5%.

The Zacks Consensus Estimate for Comerica's current-year earnings has remained stable, in the last 30 days. As a result, the stock currently carries a Zacks Rank #3 (Hold).

Comerica’s efforts to improve revenues and efficiency through GEAR Up initiatives remain impressive. So far these initiatives have been successful in driving overall growth of the company. Further, the company expects to achieve $125 million cost savings target in 2017 and return on capital employed between 13-15% in medium term.

Moreover, it remains well poised to benefit from the rising rate environment. The consistently increasing loans balance over the past years has supported margin expansion to an extent. Management expects average loan growth to be about 1% in fourth-quarter 2017.

Comerica continues to enhance shareholders’ value through steady capital deployment activities. It raised the common stock dividend twice in 2017. Also, the bank has a share repurchase program of up to $605 million underway. These activities look impressive due to its favorable debt/equity and dividend payout ratios when compared with the broader industry.

However, Comerica’s significant exposure to commercial loans (nearly 63% of the total loans) keeps us apprehensive. If the housing sector weakens, it would adversely impact the company’s financials.

Additionally, the company’s exposure to the challenging economic environment of California and Michigan remains a headwind.

Some better-ranked banking stocks worth considering are Hancock Holding Company HBHC, Capstar Financial Holdings CSTR and First Bancorp FBNC, all carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Hancock Holdings has seen the Zacks Consensus Estimate for current-year earnings being revised slightly upward in the last 60 days. The company’s share price has risen almost 12% over the past six months.

Capstar Financial’s current-year earnings estimates have been revised 24% upward over the last 60 days. Also, its shares have gained 17.1% in the past six months.

The Zacks Consensus Estimate for First Bancorp’s current-year earnings has moved 9.7% upward over the last 60 days. In the past six months, its share price has climbed 21.7%.

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Comerica Incorporated (CMA) : Free Stock Analysis Report
 
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