JPMorgan downgrades this regional bank stock ahead of earnings

Published Thu, Apr 6 20236:13 AM EDT

JPMorgan is moving to the sidelines on Comerica ahead of its first earnings announcement following the banking sector crisis. The bank lowered its rating on Comerica shares to neutral from overweight. It also decreased its price target to $44 from $75, which implies 10.2% upside from Wednesday's close price. "When we combine the impacts from a lower fed funds rate outlook on our updated estimates for Comerica, we now forecast the company to generate growth of revenue, EPS, and [tangible book value] at a level in line to below peers," analyst Steven Alexopoulos wrote in a Thursday note. "With loan and deposit growth likely to trend comparable to below peers as well, which could have served as an offset to lower net interest income from lower rates, the big question mark at this stage for Comerica (as well as most of the industry) is the degree of potential deposit outflows," he added. Alexopoulos noted that Comerica is one of the most asset-sensitive names among its coverage of U.S. small- and mid-cap banks. In the case that the Federal Reserve cuts interest rates this year as currently forecasted by the forward curve, Alexopoulos thinks Comerica would see "an above peer-level of downwards pressure on earning asset yields," leading to Comerica shares underperforming its peers. However, he notes that if the Fed decides not to cut rates, Comerica could have increased revenue growth potential and see its stock outperform the sector. The analyst said that he is still watching to see if Comerica will take steps to improve its client experience, noting that its net promoter score, based on J.D. Power data, falls behind other banks "by a fairly wide margin. "We see an improvement in client experience as a key piece of the puzzle that is needed to move CMA shares from a stock that investors rent during periods of rising rates and towards a stock that becomes a core long-term holding within portfolios," said Alexopoulos. "To this end, while the company is investing back into its franchise, we are still awaiting more tangible signs that this could potentially have on the long-term growth profile of the company." Comerica shares were up 1% during premarket trading Thursday. Shares have tumbled 40.2% year to date. The company is slated to report earnings April 20. CMA YTD mountain Comerica shares —CNBC's Michael Bloom contributed to this report.