Banks Stocks

Comerica Inc Valuation – June 2018 $CMA

Company Profile (excerpt from Reuters): Comerica Incorporated, incorporated on November 13, 1972, is a financial services company. The Company’s principal activity is lending to and accepting deposits from businesses and individuals. The Company’s segments include the Business Bank, the Retail Bank, Wealth Management, Finance and Other. The Business Bank serves middle market businesses, multinational corporations and governmental entities by offering various products and services, including commercial loans and lines of credit, deposits, cash management, capital market products, international trade finance, letters of credit, foreign exchange management services and loan syndication services. The Retail Bank includes small business banking and personal financial services, consisting of consumer lending, consumer deposit gathering and mortgage loan origination. In addition to a range of financial services provided to small business customers, this business segment offers a range of consumer products, including deposit accounts, installment loans, credit cards, student loans, home equity lines of credit and residential mortgage loans.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of CMA – June 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass all 6 of the following tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $16,612,192,440 Pass
2. Earnings Stability Positive EPS for 10 years prior Fail
3. Dividend Record Dividend Payments for 10 years prior Pass
4. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 504.13% Pass
5. Moderate PEmg Ratio PEmg < 20 22.23 Fail
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.11 Pass
Enterprising Investor; must pass all 3 of the following tests, or be suitable for the Defensive Investor.
1. Earnings Stability Positive EPS for 5 years prior Pass
2. Dividend Record Currently Pays Dividend Pass
3. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $4.35
MG Growth Estimate 9.28%
MG Value $117.62
Opinion Fairly Valued
MG Grade C
MG Value based on 3% Growth $63.02
MG Value based on 0% Growth $36.94
Market Implied Growth Rate 6.87%
Current Price $96.62
% of Intrinsic Value 82.14%

Comerica Incorporated is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability over the last ten years, and the high PEmg ratio. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $2.68 in 2014 to an estimated $4.35 for 2018. This level of demonstrated earnings growth supports the market’s implied estimate of 6.87% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

At the time of valuation, further research into Comerica Incorporated revealed the company was trading above its Graham Number of $81.13. The company pays a dividend of $1.09 per share, for a yield of 1.1% Its PEmg (price over earnings per share – ModernGraham) was 22.23, which was above the industry average of 21.57.

Comerica Incorporated receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

Graham Number $81.13
PEmg 22.23
PB Ratio 2.11
Dividend Yield 1.13%
TTM Dividend $1.09
Number of Consecutive Years of Dividend Growth 8

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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2018
Long-Term Debt & Capital Lease Obligation $5,594,000,000
Total Assets $72,335,000,000
Intangible Assets $0
Total Liabilities $64,335,000,000
Shares Outstanding (Diluted Average) 175,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $6.35
Dec2017 $4.14
Dec2016 $2.68
Dec2015 $2.84
Dec2014 $3.16
Dec2013 $2.85
Dec2012 $2.67
Dec2011 $2.09
Dec2010 $0.88
Dec2009 -$0.79
Dec2008 $1.28
Dec2007 $4.43
Dec2006 $5.49
Dec2005 $5.11
Dec2004 $4.36
Dec2003 $3.75
Dec2002 $3.40
Dec2001 $3.88
Dec2000 $4.31
Dec1999 $4.14
Dec1998 $3.72

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $4.35
Dec2017 $3.27
Dec2016 $2.84
Dec2015 $2.85
Dec2014 $2.68
Dec2013 $2.14
Dec2012 $1.60
Dec2011 $1.24
Dec2010 $1.30
Dec2009 $2.04
Dec2008 $3.68
Dec2007 $4.79
Dec2006 $4.79
Dec2005 $4.33
Dec2004 $3.94
Dec2003 $3.78
Dec2002 $3.83

Recommended Reading:

Other ModernGraham posts about the company

Comerica Inc Valuation – August 2016 $CMA
Best Stocks to Invest In: the Bank Industry – August 2016
Comerica Inc Stock Valuation – February 2016 $CMA
7 Best Stocks For Value Investors This Week – 10/24/15
The Best Companies of the Banking Industry – October 2015

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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