This Regional Bank Stock has Been Downgraded by JPMorgan Ahead of Earnings

After the crisis in the banking sector, JPMorgan is stepping back from Comerica ahead of its first earnings announcement since the crisis started. 

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Comerica shares have been downgraded from overweight to neutral by the bank. Additionally, its price target for the shares has been dropped to $44 from $75, meaning that the price has increased by 10.2% since Wednesday's close. 

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In a Thursday note, analyst Steven Alexopoulos wrote, “We now forecast Comerica to generate revenue, earnings per share, and [tangible book value] at a level that is in line with what is expected by its peers when we combine the impacts of a lower Fed funds rate outlook with our revised estimates for Comerica.”

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“The big question mark for Comerica (and the rest of the industry) at this stage is how much deposit outflow is likely to occur since loan and deposit growth will likely trend to below peers, which could have offset lower net interest income from lower rates.”

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One of Comerica's most asset-sensitive companies among those it covers is U.S. small- and mid-cap banks, according to Alexopoulos. According to Alexopoulos, Comerica's earnings will suffer “above peer levels of downward pressure on earning asset yields” if the Federal Reserve lowers interest rates this year, as currently forecast by the forward curve. 

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He observes, however, that Comerica's stock could outperform the general market downturn if the Fed decides not to cut interest rates in the coming months and the company's revenues grow.

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There are still questions as to whether Comerica will take steps to improve the client experience for its customers. According to J.D. Power data, the bank's net promoter score is below that of other banks by a fair amount based on J.D. Power data. 

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In order to move CMA shares from being rented by investors during periods of rising rates to becoming a core long-term holding within portfolios, Alexopoulos said an improvement in client experience is a key piece of the puzzle. Consequently, while the company is reinvesting in its franchise, we are still waiting for more tangible evidence of its impact on the firm's long-term growth profile.

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In Thursday's premarket trading, Comerica's shares recovered 1% from their pre-market plunge of 40.2%. In the past twelve months, the company's shares have gone down by 40.2%.

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