Ahead of the Bell: Comerica upgraded

A Keefe, Bruyette & Woods Inc. analyst upgraded Comerica Inc. Tuesday based on the regional bank's current price and despite an expectation for rising losses tied to defaulting loans.

Analyst Brian Klock upgraded Dallas-based Comerica to "Outperform," saying the current share price is attractive. Shares of Comerica closed Monday at $25.63.

Comerica shares have fallen too far on either expectations the bank will have to cut its dividend or raise capital, Klock wrote in a research note. Dozens of banks have been forced to shore up their balance sheets amid a sharp rise in loan defaults.

Comerica is unlikely to need to raise cash or slash its dividend, Klock wrote in the note.

"We believe the company's conservative credit culture, straightforward business model and strong capital levels make the likelihood of a 2008 common equity capital raise or a common dividend cut remote," Klock wrote in the note.

Comerica, even under a stress scenario is unlikely to need new capital and there is a less than 10 percent chance it would need to cut its dividend, Klock said.

Klock did however cut his 2008 and 2009 earnings estimates and price target for the bank as he expects non-performing loans and net charge-offs to continue to rise.

Charge-offs are loans written off as not being repaid.

The company believes its credit losses will largely be contained in its $830 million local builder residential loan portfolio in California and currently does not expect housing market weakness to spread into its commercial loan asset quality, Klock wrote. Also the company does not see imminent weakness in its home equity portfolio, he said.

Klock reduced his to 2008 and 2009 earnings estimates by 40 cents each to $2.40 per share and $3.60 per share respectively.

Klock lowered his price target on the shares to $32 from $37.