CMA: Fifth Third Merger Will Shape Sunbelt Reach And Influence Future Performance

Key Takeaways

• Growth in Sunbelt markets and digital innovation are expanding Comerica's customer base, supporting long-term revenue gains and operational efficiency.
  
• Strong risk management and fee-based business expansion are diversifying income, bolstering earnings stability across economic cycles.
  
• Comerica faces stagnant loan growth, rising expenses, competitive pressures, lagging technology adoption, and geographic concentration, all posing risks to long-term profitability and stability.

Catalysts

Provides financial services in the United States, Canada, and Mexico.

• Comerica's significant presence in economically vibrant Sunbelt and growth markets is fueling robust loan origination and stable deposit growth as local businesses and demographic shifts drive increased financial services demand, supporting long-term revenue expansion.
  
• Strategic investments in digital capabilities (such as new real-time payment solutions and embedded finance products) are enabling Comerica to enhance operational efficiency, reduce costs, and access new customer segments, positioning the bank to improve net margins over time.
  
• The bank's asset-sensitive balance sheet and favorable positioning to benefit from the ongoing trend of higher rates and swap portfolio maturities are expected to provide structural tailwinds to net interest income and further enhance earnings in 2025 and beyond.
  
• Prudent risk management and historically strong credit metrics (e.g., low charge-offs and conservative capital levels with CET1 at 11.94%) put Comerica in a position to maintain lower credit losses and deliver more consistent earnings through market cycles, supporting long-term profitability.
  
• Momentum in expanding fee-based businesses such as treasury management, payments, and capital markets is increasing non-interest income streams, which should diversify revenue and drive greater earnings resilience.

Comerica Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Comerica's revenue will grow by 3.1% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 21.5% today to 19.9% in 3 years time.
• Analysts expect earnings to reach $702.1 million (and earnings per share of $5.68) by about September 2028, up from $692.0 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as $803.9 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.2x on those 2028 earnings, up from 12.8x today. This future PE is greater than the current PE for the US Banks industry at 11.9x.
• Analysts expect the number of shares outstanding to decline by 2.27% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.66%, as per the Simply Wall St company report.

Comerica Future Earnings Per Share Growth

Risks

• Comerica's loan growth remains modest, with management acknowledging that total loans have been flat for a decade and currently remain below pre-2023 levels-even after recent growth, suggesting structural difficulties in achieving sustained, above-industry loan expansion and long-term revenue growth.
  
• The bank's efficiency ratio is comparatively poor, with expenses rising despite recent cost-cutting and management admitting the expense base is elevated due to necessary investments; this structurally higher cost base may suppress net margins and return on equity over the long run.
  
• Increasing competition for both deposits and loans in all core markets is driving up deposit costs and compressing net interest margin, with management explicitly stating that further upward steps in deposit pricing are required to fund growth-posing a long-term drag on profitability and earnings.
  
• Comerica's tech and product investments, while underway, are acknowledged to lag industry leaders, raising persistent risk that slower fintech and digitization adoption could lead to market share loss, customer attrition, and weaker long-term fee income growth.
  
• The bank's heavy business and geographic concentration in the Southwest and Western U.S., combined with significant commercial and middle-market customer exposure, leaves it vulnerable to sectoral or regional downturns-which could accelerate credit losses and disrupt both revenue and balance sheet growth over a multiyear period.

Valuation

• The analysts have a consensus price target of $67.15 for Comerica based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $75.0, and the most bearish reporting a price target of just $56.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $3.5 billion, earnings will come to $702.1 million, and it would be trading on a PE ratio of 14.2x, assuming you use a discount rate of 7.7%.
• Given the current share price of $69.06, the analyst price target of $67.15 is 2.8% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.