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Can Q4 Earnings Propel Comerica (CMA) Stock to New Highs?


Comerica Incorporated CMA is scheduled to report fourth quarter and 2017 results before the opening bell on Jan 16. Its revenues and earnings are expected to grow year over year.

The improving economic backdrop — stronger GDP growth, rise in consumer spending and increasing business spending — is likely to support Comerica’s results. The Zacks Consensus Estimate for revenues of $812.8 million for the fourth quarter reflects year-over-year growth of 12.6%.

Further, management’s positive outlook for 2018 on the back of lower taxes and expectations of loan growth might lead the stock to new highs.

Before we discuss why an earnings beat might also be in store, let’s take a look at how the company performed in the prior quarter.

Comerica’s third-quarter 2017 results improved primarily due to a fall in expenses and higher revenues. It had surpassed the Zacks Consensus Estimate. However, the positives were partially offset by lower loan balance and provision for loan losses.

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 10.13%.

These positive earnings surprises along with fundamental strength helped Comerica’s shares gain 23.2% over the past six months, outperforming the industry’s 14.6% rally.

A Surprise in Store?

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 in the fourth quarter.

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +0.43%. This is a major indicator of a likely positive earnings surprise.

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

Zacks Rank: Comerica’s Zacks Rank #1 (Strong Buy) when combined with a positive ESP makes us reasonably confident of an earnings beat.

Though estimates for the to-be-reported quarter have remained stable over the last 30 days, the Zacks Consensus Estimate for earnings of $1.21 reflects growth of 31.5% year over year.

Factors to Drive the Results

Net Interest Income to Rise: Comerica’s net interest income is likely to improve in the to-be-reported quarter, supported by expanding net interest margin and decent loan growth during the quarter. The Zacks Consensus Estimate for average interest earning assets of $66.4 billion reflects a marginal sequential growth.

Higher Fee Income: Trend of consumer spending was strong during the fourth quarter, which is likely to boost Comerica’s non-interest income. Also, the improvement of investment banking and equity markets might lend further support. However, poor mortgage activity during the quarter is likely to partially offset the positive.

Effective Cost Saving Initiatives: Expenses might continue to trend down in the upcoming release due to the company’s GEAR Up expense savings initiatives. However, costs are likely to be affected slightly by the tax overhaul.

Credit Quality Might Improve: With the improvement in oil prices during the quarter, normalization of credit metrics is likely to continue. The consensus estimate shows 3.1% and 2.9% rise in non-performing assets and non-performing loans, respectively, on a sequential basis.

Other Stocks That Warrant a Look

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.

BB&T Corporation BBT has an Earnings ESP of +0.26% and a Zacks Rank of 1. It is slated to report fourth-quarter and 2017 results on Jan 18. You can see the complete list of today’s Zacks #1 Rank stocks here.

Huntington Bancshares Incorporated’s HBAN Earnings ESP is +0.90% and it carries a Zacks Rank #2 (Buy). The company is expected to release fourth-quarter and 2017 results on Jan 23.

SunTrust Banks STI has an Earnings ESP of +0.27% and a Zacks Rank of 2. It is scheduled to report results on Jan 19.

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