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4 Takeaways From Comerica's Q3 EPS Beat

Close on the heels of Comerica Inc CMA 0.26% delivering an earnings beat for the third quarter, Baird maintained an Outperform rating and target price of $52 on the stock.

The firm thinks that lower credit costs were behind the earnings beat. Analysts David George and Garrett Holland pointed out $38 million sequential savings from costs provision. The analysts are also adding $40 more million to the company's "Gear Up" initiative. At the end of the year 2018, the initiative is predicted to deliver $270 million gain.

The brokerage listed the following four key takeaways:

  • Net interest income advanced 1 percent on a quarter-over-quarter basis to $450 million fueled by increased Fed balances.
  • While core fees demonstrated improvement, the company did well to control its core expenses.
  • Improvement in credit quality with NCO dropping to 0.13 percent of average loans in the third quarter from 0.38 percent in June quarter.
  • Solid capital levels with the Basel III Tier 1 common ratio improvement while tangible book value grew 1.5 percent to $41.15.

In a note, Baird said, "Shares are currently trading at ~1.2x TBV, a discount to mid-cap bank peers (~1.45x). Shares have historically traded at ~1.8x TBV. Our $52 weighted-average price target assumes a 70% weighting for the traditional target of $48 (~1.15x 2016E TBV, in line with the median P/TBV multiple post crisis) and 30% weighting for a ~$60 target in an M&A scenario (~1.5x P/TBV, in line with recent regional bank transactions)."

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