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Will Comerica (CMA) Keep Earnings Beat Streak Alive in Q3?

Zacks Equity Research
Updated

Comerica Incorporated CMA is scheduled to report third-quarter 2018 results before the opening bell on Oct 16. Its revenues and earnings are expected to grow year over year.

The company’s second-quarter results reflected rise in revenues and lower expenses. Also, a strong capital position and improvement in credit quality were the other positives. However, fall in deposits was the key headwind.

Notably, the company boasts an impressive earnings surprise history. It surpassed earnings estimates in each of the trailing four quarters with an average positive surprise of 7.4%.

Comerica Incorporated Price and EPS Surprise

Comerica Incorporated Price and EPS Surprise | Comerica Incorporated Quote

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To know whether Comerica will be able to keep its earnings beat streak alive in the to-be-reported quarter as well, let’s take a look at what our quantitative model predicts:

Our proven model shows that Comerica has the right combination of the two key ingredients —positive Earnings ESP and a Zacks Rank #3 (Hold) or better — to increase the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: The Earnings ESP for Comerica is +0.49%.

Zacks Rank: The company currently carries a Zacks Rank of 3.

Though the Zacks Consensus Estimate of $1.76 for the quarter’s earnings has remained stable over the past 30 days, it reflects growth of 39.9% year over year.

Factors to Drive Results

Net Interest Income (NII) to Exhibit Growth: Comerica’s NII is likely to improve in the to-be-reported quarter supported by expanding net interest margin. The interest rate hikes in June and September will likely offset the impact of flattening yield curve.

Also, some support will be provided from loans, particularly commercial and industrial, and consumer portfolios, even though the quarter witnessed slowdown in loan growth on account of seasonality. 

These benefits might partially be offset by a fall in interest earning assets. The Zacks Consensus Estimate projects a slight decline in average earnings assets balance to $66 billion on a year-over-year basis.

Rise in Non-Interest Income: Comerica’s GEAR Up initiatives are likely to support rise in fee income in the to-be-reported quarter as well by driving growth in treasury management and card fees, along with fiduciary income.

Also, given the continued momentum in customer spending, the usage of credit and debit cards is likely to have helped the company record higher related fees. However, muted investment banking performance is expected to partially offset the benefits.

Therefore, given expectations for rise in both NII and fee income, total revenues are likely to increase. The consensus estimate for sales for the third quarter is $852.7 million, reflecting an improvement of 3.9% year over year.

Controlled Expenses: The company is likely to have been successful in keeping expenses controlled with its GEAR Up initiatives. However, technological investment and restructuring charges might have continued to overhang.

Credit Quality Might Improve: The quarter witnessed strong credit quality trends backed by an improving economy. Also, the consensus estimate shows a 36 basis-point improvement in non-performing assets as a percentage of total loans, on a year-over-year basis.

Other Stocks to Consider

Here are some other stocks you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this time around.

BOK Financial Corporation BOKF is slated to release results on Oct 24. The company has an Earnings ESP of +0.81% and carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Cullen/Frost Bankers CFR is slated to release results on Oct 25. It has an Earnings ESP of +0.54% and carries a Zacks Rank #3.

State Street Corporation STT has an Earnings ESP of +0.13% and carries a Zacks Rank of 3. The company is also slated to release results on Oct 19.

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