Comerica (NYSE:CMA) shares fell more than 1% pre-market today after Baird analysts reduced their price target for the company to $65 from $68, while maintaining an Outperform rating.
The analysts highlighted that Comerica’s core pre-provision net revenue (PPNR) trends were slightly better than anticipated, despite investors’ concerns over the loss of the Federal Direct Express business. Comerica reported Q2 earnings per share (EPS) of $1.49, surpassing the consensus estimate of $1.19. Core revenue and expenses both fell sequentially, by approximately 5% and 1%, respectively.
Despite the modestly better-than-expected PPNR trends, Comerica’s guidance suggests a slight downside due to ongoing deposit pressures and weaker-than-expected loan demand. Credit trends at Comerica remain strong, and the bank currently has over 150 basis points of excess capital compared to its target.
The stock experienced a significant drop of over 10% following the announcement that Comerica was not selected to continue as the exclusive issuer of the Direct Express debit card for approximately 4.5 million federal benefit recipients. This change is expected to result in the loss of around $3.3 billion in non-interest-bearing deposits in the first half of 2025, which could negatively impact the run-rate EPS by approximately $0.50 due to the loss of these cheaper deposits.
The analysts believe that Comerica will eventually rebuild its deposit base and benefit from the runoff of swaps and securities, maintaining a positive long-term return profile. Despite the recent investor disappointment and stock decline, the analysts encourage investors to take advantage of the current weakness and add to their positions, given Comerica’s strong credit profile and stable return capacity.