Comerica Earnings: Facing More Deposit Pressure Than Most Peers, but We Think Market Is Too Harsh

Comerica Stock at a Glance

• Current Morningstar Fair Value Estimate: $79.00
• Stock Star Rating: 5 Stars
• Uncertainty Rating: High
• Economic Moat Rating: Narrow

Comerica Earnings Update

Narrow-moat-rated Comerica CMA reported first-quarter results that show earnings pressure is building, but we view the pressure as manageable.

We had already expected fourth-quarter results would be the peak for profitability in the current rate cycle, and while the drop-off from that peak has accelerated a bit, it is nothing categorically different.

We think the market did a reasonable job of sorting Comerica on a relative basis into the higher-risk names, as the bank is indeed facing more earnings pressure than most peers we cover, but on an absolute basis, we have a hard time getting to today’s market price. This is even after reviewing the damage of a post-March banking environment.

As we update our projections once again and make sure we are being prudent with our through-the-cycle net interest margin estimate (assuming rates eventually fall from current levels), we may lower our $79 fair value estimate by a low- to mid-single-digit percentage, but we believe the shares remain materially undervalued.

Comerica saw its deposit base decline 9% sequentially, worse than peers under our coverage, but the bank was already guiding for a greater deposit runoff than peers before March, so this isn’t a surprising result. The results were right in line with our updated “shock” projections published March 28, and the guidance implies that the runoff is essentially over.

This is putting pressure on net interest income, which dropped 5% sequentially, while the full-year NII outlook dropped from 17%-20% growth to just 6%-7%. Our March 28 projections were only looking for growth of 8%, so a 6%-7% outlook is not far off. Guidance also implies the NII run rate will fall to roughly $630 million in the second quarter and then grow slightly from there. This makes our 2024 projections, where we were already looking for the quarterly run rate to drop below $630 million, seem at least in the ballpark.