What Drove Comerica Up Is Now Weighing It Down

It's hard enough for banks to position themselves optimally for one part of the rate cycle; getting both sides right is vanishingly rare, and so it is with Comerica (CMA). It's easy to find fault now with this bank's failure to position its balance sheet for an eventual switch from tightening to easing, but few were calling for that when Comerica's asset-sensitive balance sheet was driving double-digit core PPOP growth. What's more, a lot of the things the bank did right in recent years, including capital optimization and its successful GEAR UP expense-reduction program, have more or less robbed the bank of levers to use now to offset spread compression on this still highly rate-sensitive balance sheet.

Comerica's valuation seems to be pricing in mid-single-digit short-term earnings erosion and low single-digit long-term core earnings erosion, and I think that's harsh. Likewise, the shares trade below 9x my forward EPS estimate, which is a double-digit discount to its peer group. I can see how that would appeal to value-driven investors, but I'd also note that Wall Street demands growth and Comerica could well be looking at no PPOP growth until early in 2021, leaving the shares in "value trap" limbo.

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What Drove Comerica Up Is Now Weighing It Down