Comerica Is The Most Asset-Sensitive Regional Bank In Wunderlich's Universe (And That's A Good Thing)

In a report published Friday, Wunderlich analyst Kevin Reynolds maintained a Buy rating on Comerica Incorporated CMA, while raising the price target from $55 to $60.

Comerica’s shares have been volatile over the past year, on account of decelerating growth in the Texas Triangle due to declining oil prices.

Analyst Kevin Rey said, however, that Comerica is “the most asset-sensitive regional bank in our research universe” and there are expectations of FOMC raising rates in September 2015 as well as through YE2016.

Rey added, “…we believe it is appropriate to begin incorporating the benefits of higher interest rates into our outlook, and we encourage investors to accumulate CMA shares as our best-positioned Regional Bank alternative.”

About 85 percent of the company’s loans are floating rate, with about 75 percent of these tied to LIBOR. On the funding side, 47 percent of deposits are noninterest bearing.

In the report Wunderlich noted, “According to CMA’s interest rate sensitivity disclosures in its 10Q, a +100bps move in rates would produce roughly $110 million of additional NII, while a +200bps move would produce $220 million in additional NII, yielding incremental EPS of $0.40 (+100bps) and $0.80 (+200bps).”

Comerica reported its 1Q15 EPS at $0.73, meeting or exceeded consensus estimates for the 18th straight quarter. For FY15, the company guided to:

• Average loan growth of about 4-6 percent in FY15, consistent with FY14
• Stable NII with lower accretion income while loan growth offsets continued pressure from the low-rate environment
• Stable fee income
• Higher noninterest expense
• Higher provisioning levels versus FY2014, reflecting modest NCOs and loan growth

The EPS estimates for 2015 and 2016 are at $3.15 and $3.55, respectively, higher than the consensus expectations of $3.00 and $3.45.