On Friday, UBS revised its price target for Comerica Incorporated (NYSE:CMA) to $55 from the previous $59 while maintaining a Neutral rating on the stock. The adjustment follows Comerica's recent discussion about the 2024 Net Interest Income (NII) forecast, which was influenced by changes in the forward interest rate curve.
Despite Comerica's liability-sensitive position, the management has confirmed the NII projection for a year-over-year decrease of 11%, now based on an anticipation of two 25 basis point rate cuts instead of six.
Comerica's stock performance surpassed the KRE index by 1% on the day of the announcement. The management highlighted the bank's strong deposit book and an optimistic outlook for down-cycle deposit betas throughout the remaining months of the year as key factors.
The quarter showed a robust deposit book, with brokered time deposits declining approximately 35% and non-interest bearing deposits down 7%, aligning with expectations.
Nevertheless, UBS remains cautious, considering the NII forecast as uncertain due to the unpredictable economic environment. The firm acknowledges potential positive factors for Comerica's 2025 outlook, such as the expiration of interest rate swaps, adjustments in the securities book, and benefits from lower deposit costs.
However, UBS emphasizes that the success in 2025 hinges on the 2024 exit point, which in turn depends on the interest rate levels for the rest of the year.
Given these uncertainties and the dependence on future interest rate conditions, UBS suggests that there may be more favorable risk-reward opportunities available within the banking sector. The firm's stance remains unchanged, reiterating a Neutral rating for Comerica's shares.
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