Comerica Doubles Div, Declares Buyback - Analyst Blog

Comerica Inc. (CMA) is boosting investors' confidence by doubling its dividend and announcing a share repurchase authorization. The dividend, which increased to 10 cents from 5 cents paid in the prior quarter, is payable on January 1, 2011, to common shareholders of record December 15, 2010. 

The board of directors of Comerica also authorized a share repurchase of 12.6 million or around 7% of the outstanding common stock as of September 30, 2010. In addition, the board has authorized outstanding warrants to purchase up to another 11.5 million shares. This authorization will replace the company's previous share repurchase programs.  

This is welcome news and we expect larger banks such as JPMorgan Chase & Co. (JPM), U.S. Bancorp (USB) and Wells Fargo & Co. (WFC) to announce dividend increases in the upcoming quarters following a clarity regarding regulatory targeted capital levels.  

However, everything is not well with Comerica. Though such dividend increases and share repurchase authorization should raise investors' spirits, we cannot ignore the fact that Comerica had missed its Zacks Consensus Estimatein the third quarter. The company reported third-quarter 2010 net income of 33 cents per share, below the Zacks Consensus Estimate of 41 cents and lower than the prior quarter by 6 cents. Results reflected a decrease in net interest income, non-interest income, net interest margin and higher non-interest expenses. However, improvement in credit quality was a positive factor.  

During the third quarter earning release, management at Comerica provided guidance for the fourth quarter. Management expects non-interest income to fall by single-digits sequentially. Further, it expects market-related fees to be lower due to the vigilant nature of customers in a sluggish and uncertain economic environment.  

Comerica's management also projects a low single-digit increase in non-interest expenses compared with the third quarter of 2010. The projection includes an estimated $5 million negative impact reflecting the accumulation of the remaining original issuance discount on the redemption of trust preferred securities. Hence at this time we keep our finger crossed. 

Comerica shares currently have a Zacks #5 Rank (Strong Sell), indicating significant potential for downward pressure on the shares over the near term.

 
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