Comerica Estimates Downed Again
Comerica's (CMA) 1Q08 earnings from continuing operations of $0.73 per share were substantially short of estimates. The miss mainly stemmed from a decline in net interest margin (down 21 bps sequentially to 3.22%) and a steep rise in the provision for loan losses (up 47.2% sequentially to $159 million).
Continued deterioration in the residential real estate development loan portfolio, mainly in California, resulted in the increase of non-performing assets and net charge-offs to 1.07% (up 24 bps) and 0.85% (up 35 bps), respectively, of total loans at the end of 1Q08. After reviewing the results, we have further lowered our EPS estimates and our six-month target price. We maintain our Sell recommendation on the shares.
Non-interest income was $237 million for the 1Q08, compared to $230 million for 4Q07 and $203 million for the 1Q07. Growth in fiduciary income, service charges on deposit accounts, and commercial lending fees was offset by a decrease in net income from principal investing and warrants combined with deferred compensation asset returns.
Non-interest expenses were $403 million for 1Q08, compared to $450 million for 4Q07 and $407 million for the 1Q07. The $47 million decrease in non-interest expenses sequentially resulted mainly from the reversal of $13 million charge related to VISA litigation and a $16 million decrease in the salaries expense.
Non-performing assets (NPAs) were 107 bps of total loans and foreclosed property, for the first quarter 2008 as compared to 83 bps in the fourth quarter 2007. Net Charge-offs (NCOs) increased to an annualized 0.85% of average loans. Provision for loan losses increased by $51 million to $159 million at March 31, 2008.
Steady Strength at Exxon Mobil
We reiterate our Buy recommendation for Exxon (XOM) shares ahead of the company's quarterly results, but raise our earnings estimates to reflect the continued commodity-price strength. Our new 2008 and 2009 EPS estimates are $8.45 and $8.20, up from $7.68 and $7.91, respectively.
With a 10-year average replacement ratio of 112%, Exxon has continued to replace annual production with new and quality reserves additions. We continue to like the stock for its best-in-class upstream business, a chemicals business that is fully integrated with its quality refining assets, an exceptionally strong balance sheet, and a track record of returning significant capital to shareholders.
Exxon Mobil shares have historically traded at a premium to its super-major peers, reflecting its industry-leading returns, financial strength and a highly regarded management team. Currently, the shares are trading at 11.0x our revised 2008 earnings estimate, which represents a 17% premium to the peer group's mean. Historically, Exxon shares have traded in the 20% to 30% premium range.
