While I thought that Comerica (CMA), like many banks, was undervalued on a long-term basis after first quarter earnings, I also thought that the bank had almost all of the wrong attributes for the current environment and wasn't a great near-term outperformance option. Since then the shares have in fact done a little better than I'd expected, and a little better than the peer group, as some of the more dire bear-case economic scenarios have moved off the table.
Even with that outperformance, though, there are some significant headwinds for Comerica. The bank's high asset sensitivity is problematic, the fee-generating business isn't particularly large or independent of core banking trends, and criticized loan balances are accelerating. Capital levels are still good, though, and Comerica may be able to avoid a dividend cut. I'm still concerned about the short-term relative outperformance prospects, but I think Comerica is undervalued pretty meaningfully if management can get ROEs back up to the high single-digits on a long-term average basis.
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