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Will High Energy Provision Hit Comerica (CMA) Q1 Earnings?

Comerica Incorporated CMA is scheduled to report first-quarter 2016 results, before the opening bell on Tuesday, Apr 19.

The Texas-based banking giant’s earnings declined 20% year over year in the final quarter of 2015. Results reflected a notable rise in revenues, partially offset by higher expenses and provisions. Will top-line growth support Comerica’s results this time around? Or will industry headwinds disrupt its performance in the upcoming release?

Notably, our quantitative model doesn’t call for an earnings beat this time. Also, the Zacks Consensus Estimate of 42 cents for the first quarter indicates a significant year-over-year decline of about 42%.

Here is what our model indicates:

Our proven model does not conclusively show that Comerica is likely to beat the Zacks Consensus Estimate in the upcoming release. This is because a stock needs to have the right combination of the two key criteria – a positive http://www.zacks.com/earnings/earnings-surprise-predictions/">Earnings ESP and a Zacks Rank #1 (Strong Buy) or at least 2 (Buy) or 3 (Hold) – for greater chances of an earnings surprise. Unfortunately, this is not the case here, as elaborated below.

Zacks ESP: The Earnings ESP for Comerica is +2.38%.  This is because the Most Accurate Estimate of 43 cents stands above the Zacks Consensus Estimate of 42 cents.

Zacks Rank: However, Comerica’s Zacks Rank #4 (Sell) lowers the predictive power of ESP. We caution investors against stocks with a Zacks Rank #4 and #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.

What to Expect in Q1?

The key concern for Comerica is primarily tied with its exposure in the stressed energy sector.  As of Dec 31, 2015, loans in the energy business were $3.1 billion, representing around 6% of the company’s total loans. Continued negative credit migration in the energy portfolio, as witnessed across the industry, will likely drive higher provisions.

Notably, management expects additional provision in the range of $75–$125 million, most of which is likely to be recognized in first quarter 2016.

Further, quarterly results are likely to be hurt by higher noninterest expenses.  The rise in expenses should mainly stem from regulatory and technology platforms.

However, on a positive note, the company should show an improvement in net interest income and net interest margin in first-quarter 2016 in reflection of the full quarter impact of the rate hike which was announced in mid December last year. Also Comerica’s fee-based income will likely exhibit growth on the back of higher card fees and fiduciary income as the company remains focused on cross-sell opportunities.

Additionally, quarterly results are likely to reflect loan growth across all categories, excluding energy.

The activities of Comerica during the quarter have not been able to win analysts’ confidence as reflected by 12 downward revisions in earnings estimates (versus no upward revision) over the last 60 days. Among the estimates that moved south, one was seen in the last seven days. The Zacks Consensus Estimate has been revised 40.8% downward over the last three months.   

Stocks That Warrant a Look

Here are some stocks worth considering, as according to our model they have the right combination of elements to post an earnings beat this quarter.

The Earnings ESP for The Blackstone Group L.P. BX is +40.63% and carries a Zacks Rank #3. It is scheduled to release results for the first-quarter on Apr 21.

PrivateBancorp, Inc. PVTB has an Earnings ESP of +1.75% and carries a Zacks Rank #3. It is expected to report first-quarter results on Apr 21.

People's United Financial Inc. PBCT has an Earnings ESP of +4.76% and carries a Zacks Rank #3. It is slated to report first-quarter results on Apr 21.

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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
COMERICA INC (CMA): Free Stock Analysis Report
 
PRIVATEBANCORP (PVTB): Free Stock Analysis Report
 
BLACKSTONE GRP (BX): Free Stock Analysis Report
 
PEOPLES UTD FIN (PBCT): Free Stock Analysis Report
 
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