Continue to hold Comerica (USA Stocks:CMA) based on its current debt obligations?
 | By Aina Ster | Macroaxis Story |
Comerica, a leading player in the Financial Services sector, has shown promising signs of sustainable growth. The company, traded on the NYSE, boasts a robust total stockholder equity of $5.2B and an impressive net interest income of $2.5B. Despite a loss of $376M in dividends paid, Comerica has managed to maintain a forward dividend yield of 0.0676, which is mirrored in its dividend yield. The company's retained earnings stand at a strong $11.3B, demonstrating its potential for future growth. However, investors should note the company's short long term debt total of $6.2B and a total cash from financing activities loss of $7.1B. Despite these challenges, Comerica's end period cash flow of $6.3B and short term investments of $19.2B indicate a healthy financial position. With 20 analyst estimates, 6 holds, and only 1 strong sell, Comerica appears to be a smart investment for sustainable growth. Comerica is set to announce its earnings today, with the subsequent financial report anticipated on January 18, 2024. Currently, Comerica's Net Income Per Employee is projected to see a significant increase, based on the trends observed in the past few years of reporting. The Average Assets for the current year are expected to grow to approximately $88.3 billion, while the Revenue Per Employee is predicted to decrease to around $409.1 thousand. Given the widespread interest in the banking sector, it's worth considering Comerica as a unique investment alternative.
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Reviewed by Vlad Skutelnik
The company, Comerica, currently holds $6.24 billion in debt, with a debt to equity (D/E) ratio of 8.51. This suggests that Comerica might struggle to generate sufficient cash to meet all of its financial obligations. While debt can be beneficial for Comerica in the short term, problems could arise if the company struggles to repay it, either through new capital or free cash flow. In such a scenario, Comerica's shareholders could potentially end up with nothing if the company fails to meet its legal obligations to repay its debt. However, a more common scenario is when companies like Comerica issue additional shares at discounted prices, thereby diluting the value of existing shares. Despite these risks, debt can be an excellent tool for Comerica to invest in growth at high rates of return. When evaluating Comerica's use of debt, it's essential to consider it in conjunction with cash and equity.
Progressive assessment
Comerica's financial leverage indicates a strong position with a Total Stockholder Equity of 5.2B and Net Tangible Assets of 4.8B. The company's healthy End Period Cash Flow of 6.3B provides further assurance of its financial stability. However, investors should be aware of Comerica's significant Non Current Liabilities Total of 77B and Short Term Debt of 3.2B. Despite these liabilities, Comerica's strong Operating Income of 1.7B and Net Income From Continuing Ops of 1.2B suggest that the company is capable of managing its debts while still providing a promising return on investment. Comerica financial leverage ratio helps determine the effect of debt on the overall profitability of the company. It measures the total debt position of Comerica, including all of Comerica's outstanding debt obligations, and compares it with the equity. In simple terms, the high financial leverage means the cost of production, together with running the business day-to-day, is high, whereas, lower financial leverage implies lower fixed cost investment in the business and generally considered by investors to be a good sign. So if creditors own a majority of Comerica assets, the company is considered highly leveraged. Understanding the composition and structure of overall Comerica debt and outstanding corporate bonds gives a good idea of how risky the capital structure of a business is and if it is worth investing in it. Please read more on our technical analysis page.
Understanding Comerica Total Debt
Comerica liabilities are broken down into two parts on the balance sheet. These are short-term (or current) obligations and long-term debt. Comerica has to fulfill its short-term liabilities in this reporting year and should be no more than 12 months old. Long-term debt, on the other hand, is anything beyond the 12-month payment timeframe. Common short-term liabilities found on Comerica balance sheet include debt obligations and money owed to different Comerica vendors, workers, and loan providers. Below is the chart of Comerica main long-term debt accounts currently reported on its balance sheet. You can use Comerica financial leverage analysis tool to get a better grip on understanding its financial positionHow important is Comerica's Liquidity
Comerica financial leverage refers to using borrowed capital as a funding source to finance Comerica ongoing operations. It is usually used to expand the firm's asset base and generate returns on borrowed capital. Comerica financial leverage is typically calculated by taking the company's all interest-bearing debt and dividing it by total capital. So the higher the debt-to-capital ratio (i.e., financial leverage), the riskier the company. Financial leverage can amplify the potential profits to Comerica's owners, but it also increases the potential losses and risk of financial distress, including bankruptcy, if the firm cannot cover its debt costs. The degree of Comerica's financial leverage can be measured in several ways, including by ratios such as the debt-to-equity ratio (total debt / total equity), equity multiplier (total assets / total equity), or the debt ratio (total debt / total assets). Please check the breakdown between Comerica's total debt and its cash.
Breaking it down
The firm reported the last year's revenue of 3.53 B. Total Income to common stockholders was 1.15 B with profit before taxes, overhead, and interest of 3.47 B. Comerica Incorporated (NYSE: CMA) is a financial services company that has shown promising performance and growth, despite the volatility of the banking sector. With a net income of $1.15 billion and EBITDA of $1.77 billion, the company demonstrates strong earning potential. It also boasts a substantial end period cash flow of $6.3 billion, indicating a robust liquidity position. Comerica's total assets stand at $85.4 billion, including $4.8 billion in net tangible assets. Its total debt is relatively manageable at $6.24 billion, considering its strong cash flow and asset base.The company's net interest income of $2.5 billion further underlines its profitable operations. The bank's forward dividend rate of 2.84 and a yield of 0.0676 demonstrate its commitment to returning value to shareholders. However, investors should consider the company's beta of 1.27, suggesting higher volatility compared to the market. Despite these promising figures, Comerica has a relatively high probability of bankruptcy at 45.63%. This risk factor, coupled with a negative Treynor Ratio of -0.17 and a Jensen Alpha of -0.15, indicates potential downside risks. In conclusion, while Comerica presents a compelling investment case based on its earnings and dividends, investors must carefully consider the associated risks. .
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