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Is Comerica stock insulated against a Fed pivot?

on Nov 21, 2022
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  • Raymond James sees upside in Comerica stock to $85 a share.
  • Analyst Michael Rose explains the bull case in a research note.
  • Shares of the regional bank are down 30% versus its YTD high.

Comerica Incorporated (NYSE: CMA) ended in the green on Monday after a Raymond James analyst said the regional lender looks well-positioned for a recession.

Comerica stock has upside to $85 a share

Michael Rose now rates this Dallas-headquartered financial services firm at “outperform”. His price objective of $85 a share represents a 20% upside on its previous close.

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That’s an interesting upgrade since Comerica itself signalled a near-term peak in its NIM (Net Interest Margin) last month. Still, the analyst wrote:

We see its strong capital/liquidity position, density in both attractive/stable markets, historically strong asset quality, and hedging strategy providing downside NIM/NII protection if/when the Fed pivots.

The regional bank had better-than-expected profit and revenue in its third financial quarter. A near 4.0% dividend yield makes up for another good reason to own the Comerica stock.

Comerica stock is a favourable risk-reward

Down about 30% versus its year-to-date high, Rose says the stock is favourable risk-reward and finds it attractive in terms of relative valuation, particularly considering its strong fundamentals.

Since it’s regionally focused, Comerica Incorporated is immune to geopolitical tensions as well. Continued loan growth was among other reasons cited for the constructive view.

It is also noteworthy that many, including Professor Jeremy Siegel as Invezz reported today, are expecting the Federal Reserve to “pause” in early 2023. But a return to cutting rates is not a very popular opinion.

So, interest rates will remain near 5.0%, which suggests the supportive environment for the likes of Comerica Incorporated will extend well into 2023.