Comerica Struggling To Find Leverage Amid Serious Spread Compression

One of the biggest reasons I was neutral to bearish on Comerica (CMA) last quarter, despite apparent undervaluation, was the sentiment headwind the company was facing from what I expected to be a lengthy string of weak pre-provision profit numbers through 2021. That weakness is not only showing up, but it’s worse than I expected, and management’s guidance for 2020 was not encouraging with respect to spreads, loan growth, or operating leverage.

At some point highly asset-sensitive names like Comerica are going to bottom out, but that’s a sentiment call more than a numbers call and it can be hard to predict when investors will collectively decide that they have good enough visibility on the end of the downturn to start buying for the upturn. I do still believe that Comerica is undervalued, but with pre-provision profits again likely to decline throughout 2020 and management guidance pointing the wrong way, it’s still hard to argue for stepping up and buying now.

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Comerica Struggling To Find Leverage Amid Serious Spread Compression