Comerica Target Lowered Further

Source: http://www.zacks.com/
Posted on Monday, August 11th, 2008 | In Market Commentary, Stocks to Watch

Contributed by: Zacks Market Commentaries (http://www.zacks.com/) -

Comerica Inc.s (CMA) second quarter adjusted earnings from continuing operations of $0.58 per share were four cents short of our estimate. The miss mainly stemmed from a decline in net interest margin (down 31 bps sequentially to 2.91%) and a rise in the provision for loan losses.

Continued deterioration in the residential real estate development loan portfolio, mainly in California, resulted in the increase of nonperforming assets to 1.44% (up 37 bps sequentially) of total loans and foreclosed property. As we suspect that the credit related costs will remain high in the coming quarters and the company may also need to cut its dividend, we have further lowered our EPS estimates and our six-month target price.

Comerica currently trades at 12.6x, the consensus forward estimate (versus 13.5x at the time of our last full report), at a 5% discount to the large-cap peer group median (versus 11% premium at that time). On a price-to-book basis, the shares are trading at 5% premium to the peer median (versus 4% discount earlier).

Relative pricing continues to look very expensive on a P/E-to-growth (PEG) basis, using the consensus forward estimate and the consensus long-term growth rate. CMAs PEG ratio is 3.00x, a 64% premium to the 1.83 median for the peer group (versus 81% premium earlier). However, on a price-to-book basis, the 5% premium looks attractive, given a ROE 51% above median (the ROE-adjusted P/B is 21% below median).

Our new six-month price target of $26.00 per share is based on a multiple of 11.6x our projected 2008 EPS. We are maintaining our Sell recommendation on the shares of CMA.

Kalyan Nandy contributed to the report.

Read the full analyst report on CMA

“CMA” Free Stock Analysis: Buy? Sell? Hold?
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