Comerica Incorporated (CMA) is scheduled to report its fourth-quarter 2014 results on Jan 16, before the market opens.
Last quarter, this major regional bank reported earnings per share of 79 cents, comparing favorably with the prior-year quarter figure. Results reflected a decline in both non-interest expenses and provision for credit losses. Improving credit quality and a sturdy balance sheet position acted as the tailwinds. Moreover, in the four trailing quarters, Comerica posted an average surprise of 2.06%.
Let us see how things have shaped up for this announcement.
Factors to Influence Q4 Results
Sluggish macro economic conditions resulting in a decline in consumer and business spending, have adversely affected the non-interest income of Comerica over the last few quarters. In our opinion, lower non-customer driven income will lead to a moderate decline in non-interest income, going forward.
With the industry already facing a persistent low-rate environment, increased regulations, strict capital norms and rising compliance costs might act as major dampeners in the coming quarters.
However, Comerica’s profit improvement plan, which aims at lowering expenses, will generate improved operational efficiency. This, in turn, will likely support the company’s bottom line, going forward.
Management’s Expectations for the fourth quarter and 2014:
Comerica overall affirmed the previous guidance, while providing some updated projections for the fourth quarter and 2014. Given the sluggish growth in the economy and low-interest rate environment, the company’s outlook is modest.
Fourth quarter compared with the third quarter:
The company expects slight growth in loans considering the seasonal decline in Mortgage Banker Finance, alongside a rise in National Dealer Services. Moreover, growth in other business portfolios is expected. Further, Comerica expects slight growth in net interest income reflecting purchase accounting accretion of $5 million.
Non-interest income is expected to remain flat with stable customer-driven income and lower non-customer-driven income. Comerica expects higher non-interest expense on account of elevated technology and consulting expenses, seasonal rise in benefits expense and certain one-time items in the fourth quarter to lead to additional charges of about $5–$7 million.
2014 Compared with 2013:
The company expects average loans to grow around 5% in 2014. Further, Comerica expects lower net interest income in 2014 due to persistent pressure from the low rate environment and purchase accounting accretion of around $30 million. These negatives are expected to be partially offset by loan growth.
Non-interest income is expected to exhibit a moderate decline due to lower non-customer driven income. However, customer driven fee income is projected to remain flat. Comerica expects lower non-interest expense in 2014 on account of a 50% reduction in pension expense and lower legal expenses.
Nevertheless, Comerica’s activities during the quarter were not sufficient to win analysts’ confidence. As a result, the Zacks Consensus Estimate remained stable at 77 cents per share over the last seven days.
Earnings Whispers
Our proven model does not conclusively show that Comerica is likely to beat the Zacks Consensus Estimate in the fourth quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or at least 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, this is not the case here as elaborated below.
Zacks ESP: The Earnings ESP for Comerica is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 77 cents per share.
Zacks Rank: Though Comerica’s Zacks Rank #3 increases the predictive power of ESP, we also need to have a positive ESP to be confident of an earnings surprise call.
Stocks That Warrant a Look
Here are some finance stocks you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:
First Republic Bank (FRC) has an earnings ESP of +1.39% and carries a Zacks Rank #3. It is expected to report its fourth-quarter results on Jan 15.
The earnings ESP for The PNC Financial Services Group, Inc. (PNC) is +0.57% and it carries a Zacks Rank #3. The company is scheduled to release its fourth-quarter results on Jan 16.
First Horizon National Corporation (FHN) has an Earnings ESP of +5.88% and carries a Zacks Rank #3. It is scheduled to report results on Jan 23.
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