JPMorgan Upgrades Comerica (CMA) to Overweight
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JPMorgan analyst Steven Alexopoulos upgraded Comerica (NYSE: CMA) from Neutral to Overweight with a price target of $46.00.
The analyst comments "We are upgrading CMA shares from Neutral to Overweight. While the fundamentals for Comerica are unchanged since 1Q23 earnings a few weeks ago, there has been a wide disconnect between the fundamentals of the business and the performance of CMA shares in the past week following the failure of First Republic particularly with our average bank’s share price declining -14% and CMA decreasing -28%. As a result, CMA shares now trade at just 3.8x 2023e EPS, 0.76x 2023e TBV, and at a very elevated 27% implied cost of equity. With that said, we continue to believe that Comerica screens marginally less favorably vs. peers on interest bearing deposit costs, has less room of seeing earning asset yields reprice higher, and has a higher concentration of uninsured deposits. Balancing these points out, however, Comerica has bolstered its liquidity levels, has a higher concentration of non-interest bearing deposits which should help buffer the overall rise in deposit costs, 2023 ROTE expected in the ~20% range (above our coverage at ~17%), and the concentration of CRE loans as well as the reserve ratio are each in line with our coverage universe. With these deeply depressed valuation levels indicative of there being too many investors including short sellers on one side despite no changes to the fundamental picture of the company, we see CMA shares as mispriced and see very favorable risk/reward at these valuation levels. Change in allocation: We are increasing the allocation into CMA given that we are upgrading the stock from Neutral to Overweight, following the large relative underperformance this week despite the fundamentals of the business seeing no change since reporting 1Q23 earnings a few weeks ago."
Shares of Comerica closed at $31.21 yesterday.
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