Comerical Inc. was among the most active bank stocks on a quiet summer Tuesday, with shares picking up 87.5 cents to $59.50 in late trading. The gain came on the heels of a 75-cent increase Monday.
The Detroit-based company and analysts attributed the activity to bullish signals that management sent to investors at meetings in Boston and New York at the end of last week.
Fox-Pitt Kelton, the investment firm that sponsored the meetings, has reiterated its purchase recommendation on Comerica, calling its recent union with hometown rival Manufacturers National Corp. "one of the best-conceived bank mergers of the last several years."
The stock price has languished between $56.875 and $62 since the merger closed June 18, although it is well above Comerica's closing price of $42.875 before the merger was announced last Oct. 28.
Mr. Laplante said the stock is still cheap, considering that the merger promises $130 million a year in cost savings, no dilution of shareholder value, and unusually strong asset quality.
"Once Comerica begins to produce the numbers we're talking about, people will sit up and begin to take notice." Mr. Laplante said.
Mr. Laplante said investors are overlooking a potential 20% boost to 1993 earnings due to cost cutting.
With the stock trading at a mere nine times estimated 1993 earnings of $6.70, Mr. Laplante called Comerica "a compelling buy.
"As early as 1993, we believe that Comerica could be producing a return on assets and return on equity of 1.40% and 17.0% respectively," he wrote in a report last week.
During the meetings, president and chief operating officer Eugene A. Miller "was quite forceful in saying the expense target is quite achievable," Norman Jaffe, another Fox-Pitt analyst, said in an interview. "He is not going to be distracted."
The company said it expects to complete two-thirds of its job-cutting program, eliminating 1,200 positions by the end of the year, Mr. Laplante said.
Indeed, a higher than expected one-time charge for merger expenses of $128 million, taken against second-quarter earnings, was viewed as a sign the company is ahead of schedule.
The charge reflected that more people than expected took advantage of an early retirement program, noted Ken Puglisi, bank analyst at Chicago Corp.
In most cases, mergers dilute the value of the stock of the acquiring company, creating a delay before investors reap the benefits. "Comerica was paying a premium so slight that the deal was accretive to book value," Mr. Laplante said.
That means the investors will gain from cost savings relatively quickly, with earnings beginning to pick up this year, and accelerating markedly next year, he said.
Other deals often entail a strong institution swallowing one with "suspect asset quality." But again, that is not the case in the merger of equals between Manufacturers and Comerica, Mr. Laplante said.
He said Fox Pitt calculates that Comerica now has the seventh-best asset quality among the 50 largest banks in the nation.