Comerica Reaffirmed at Neutral

We have reaffirmed our Neutral recommendation on the shares of Comerica Inc. (CMA) following the company’s earnings release, quarterly filing and the regulatory moves. The reaffirmation is based on the company’s fundamentals, growth opportunities, credit environment and challenges in a post regulatory environment.

Comerica has turned to profit in the second quarter of 2010 after reporting losses for several quarters. The company’s results also outpaced the Zacks Consensus Estimate. Credit metrics improved during the quarter, with significant declines in net charge-offs and provision for loan losses. The company also reported an increase in interest margin in the quarter.

Comerica focuses on expanding its foothold in the Western and Sun Belt markets, opening banking centers in Orange County, Los Angeles, the San Francisco area, southern Florida and northern Texas. Additionally, cost containment remains on the cards, with management guiding a low-single digit decrease in non-interest expenses in 2010 compared with full-year 2009.

However, significant exposure to riskier areas such as commercial real estate markets and lack of loan growth are downsides for the company. Moreover, we expect the recent regulatory moves such as Reg E amendments (overdraft legislation) and the sluggish economic recovery to reduce fee income. This is also reflected in the company’s guidance for the full year, where management expects a low to mid single-digit decline in non-interest income compared to 2009. This includes a negative impact from overdraft policy changes consistent with new regulations issued by the Federal Reserve.

Along with Comerica, we expect the regulatory issues to impact both the top and bottom lines of other companies such as JPMorgan and Chase Company (JPM), Bank of America Corporation (BAC), Citigroup Inc. (C), Goldman Sachs Group Inc. (GS), Wells Fargo & Company (WFC), Huntington Bancshares Inc. (HBAN) and U.S. Bancorp (USB).

Comerica currently carries a Zacks #3 Rank (Hold), implying no clear directional pressure on the stocks over the next one to three months. Considering both the positive and the negative aspects of retaining this share in an investor’s kitty, we have a long term Neutral stance on the stock.

COMERICA INC (CMA): Free Stock Analysis Report

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