Comerica Incorporated (CMA) has been boosting investors’ confidence by redeploying capital. The company’s board of directors has approved its plan to continue with the current share repurchase program in the first quarter of 2012. Management expects the share repurchase program along with dividend payments to result in a payout of up to 50% of net income for the first quarter of 2012.
Notably, on November 16, 2010, Comerica’s board of directors authorized the company to repurchase up to 12.6 million shares of its outstanding common stock as well as the purchase of up to all 11.5 million of its original outstanding warrants, which expire on November 14, 2018. There is no expiration date for the company’s share repurchase program.
During the third quarter of 2011, Comerica repurchased 2.1 million shares of common stock in the open market at an average price of $25.38. In total, till the third quarter of 2011, Comerica repurchased 2.7 million of shares and warrants for an average price of $28.24. The company currently has 21.5 million shares and warrants remaining under the repurchase authorization.
In October, Comerica reported third-quarter 2011 operating earnings of 62 cents per share, significantly beating the Zacks Consensus Estimate of 52 cents. The outperformance reflected the growth in Comerica’s top line, partially offset by higher non-interest expenses. Further, a significant improvement in credit quality and strong capital ratios also acted as catalysts. During the reported quarter, Comerica completed the acquisition of Sterling Bancshares Inc.
Our Take
Comerica’s strategic expansion efforts and focus on cost containment augur well. The acquisition of Sterling will enhance its growth in Texas. The company is focused on opportunities to accelerate growth, particularly in the urban markets of California and Texas. We expect its organic growth to pick up with a recovery expected in the upcoming quarters. Continuous geographic diversification beyond Comerica’s traditional and slower-growing Midwest markets could drive growth over the next cycle.
Capital deployment efforts also inspire investors’ confidence in the stock. Yet, its significant exposure to riskier areas such as commercial real estate markets, lack of meaningful loan growth and regulatory headwinds are the downsides.
Comerica currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. Also, one of its peers, M&T Bank Corp. (MTB) retains a Zacks #3 Rank.
