With $89.20 million in total assets (as of March 31, 2022), Comerica Incorporated (CMA) offers financial products and services. It operates through four segments: Commercial Bank; Retail Bank; Wealth Management; and Finance. Since March 2022, CMA has been focused on the structural transformation of its business to improve customer service and streamline its small business focus. CMA plans to consolidate 22 of its existing 432 U.S. locations across three of its retail markets by September this year.
Rising interest rates bode well for commercial banks, as they charge higher interest on loans to customers. However, given consumer spending has been decelerating over the past month amid inflationary pressures, as retail sales declined marginally in May. This, coupled with rising borrowing costs, could discourage lending in the upcoming months, adversely impacting CMA’s loan and interest income. Shares of CMA have declined 17.1% year-to-date.
Here’s what could shape CMA’s performance in the near term:
Bleak Financials
CMA’s interest and fees on loan income declined marginally year-over-year to $383 million in the fiscal first quarter ended March 31, 2022. Total noninterest income fell 9.6% from the same period last year to $244 million. Net income came in at $189 million, reflecting a 46% decline from the prior-year quarter. In addition, the comprehensive loss amounted to $772 million, compared to the $181 income reported in the same period last year. EPS declined 43.6% from the prior-year quarter to $1.37.
Moreover, CMA’s net operating cash outflow stood at $710 million, compared to the $159 million inflow in the prior-year quarter. Cash and cash equivalents came in at $13.55 billion as of March 31, 2022, down 8.9% from March 31, 2021. In addition, loan yields declined four basis points in the fiscal first quarter, while average deposits decreased by $5.4 billion.
Poor Growth Story
CMA’s revenues declined at a 2.4% CAGR over the past three years, while EBITDA fell at a rate of 9.1% per annum over this period. Trailing-12-month EBIT fell 2% year-over-year. The company’s net income and EPS declined 8% and 1.9% per year over the past three years. Furthermore, CMA’s total assets declined at a 4% CAGR over the past three years and a 3.8% rate over the past five years.
Over the trailing 12 months, the company’s total assets fell 15.7% year-over-year. Levered free cash flow declined at 3.6% per annum over the past three years. Over the past year, levered free cash flow fell 14.4% year-over-year.
Stretched Valuation
In terms of forward non-GAAP P/E, CMA is currently trading at 10.16x, 3.9% higher than the industry average of 9.78. Its trailing-12-month PEG multiple of 0.67 is 114.8% higher than the industry average of 0.31.
In addition, CMA is currently trading 3.03 times its forward sales, 7.6% higher than the industry average of 2.82. Also, its forward Price/Book ratio of 1.39 is 29.7% higher than the industry average of 1.07.
POWR Ratings Reflect Bleak Prospects
CMA has an overall D rating, which equates to Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.
CMA has a grade of D for Quality and Growth. The company’s trailing-12-month ROA of 1.13% is 9.9% lower than the industry average of 1.25%, justifying the Quality grade. In addition, CMA’s revenues and net income have declined at rates of 2.4% and 8% per annum over the past three years, in sync with the Growth grade.
Of the 11 stocks in the F-rated Money Center Banks industry, CMA is ranked last.
Beyond what I’ve stated above, view CMA ratings for Sentiment, Stability, Momentum, and Value here.
Bottom Line
The Fed hiked the benchmark interest rates by 75 basis points yesterday, the largest hike in nearly three decades. However, analysts expect CMA’s EPS to decline 24.5% year-over-year in the fiscal second quarter (ending June) and 10% year-over-year in fiscal 2022. As the Fed is slated to maintain its aggressive stance amid persistent macroeconomic issues, CMA is best avoided now.
CMA shares were trading at $73.81 per share on Thursday afternoon, down $2.53 (-3.31%). Year-to-date, CMA has declined -13.72%, versus a -22.53% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.
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