On Monday, BofA Securities adjusted its stance on Comerica (NYSE:CMA), moving its rating from Neutral to Underperform and lowering the price target to $52 from the previous $55.
"We believe the positive rate trade underpinning CMA has run its course. Shares now trade above the high-end of its historical trading range and are not discounting the downward revision risk," said BofA in a note to clients."
The report suggests that an anticipated 200 basis point reduction in interest rates by the end of 2025 could negate the financial advantages gained from various measures such as swaps, reinvestment strategies, the cessation of the BSBY index, and deposit repricing. Comerica is identified as one of the mid-cap banks with a significant risk of a decline in its net interest income (NII) estimates for 2025.
Furthermore, the transition of the Direct Express program is expected to introduce additional risk, which has not yet been factored into current estimates. In light of these factors, the analyst has adjusted their estimates to reflect a yield curve that includes the expected rate cuts.
The new price objective of $52 is based on a balanced weighting between Comerica's estimated earnings per share for 2025 and its tangible book value, using unchanged multiples of 12.0 times earnings and 1.1 times book value, respectively. This revised price target suggests a potential 12% downside from the current share price.
In other recent news, Deutsche Bank maintained its Hold rating on the company, while DA Davidson and Piper Sandler also reiterated their Neutral stance.
InvestingPro Insights
Recent data from InvestingPro adds depth to BofA Securities' analysis of Comerica (NYSE:CMA). Despite the downgrade, InvestingPro Tips highlight that Comerica has maintained dividend payments for an impressive 54 consecutive years, demonstrating long-term financial stability. This track record could provide some reassurance to investors concerned about the potential downside suggested by BofA.
However, aligning with BofA's cautious outlook, InvestingPro data shows that Comerica's revenue growth has been negative, with a -14.47% decline in the last twelve months as of Q2 2024. This supports the analyst's view that the benefits from interest rate hikes may have waned.
On a positive note, Comerica's P/E ratio stands at 13.02, which is relatively low and could indicate that the stock is undervalued, contrary to BofA's assessment that the current share price exceeds historical ranges. Additionally, the company boasts a dividend yield of 4.83%, which may attract income-focused investors despite the potential challenges ahead.
For a more comprehensive analysis, InvestingPro offers 7 additional tips on Comerica, providing investors with a broader perspective to make informed decisions.
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