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Commerce (CBSH) Up 6.6% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Commerce Bancshares (CBSH). Shares have added about 6.6% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Commerce due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Commerce Bancshares Beats on Q3 Earnings, Costs Rise

Commerce Bancshares’ third-quarter 2018 earnings per share of $1.03 surpassed the Zacks Consensus Estimate of 97 cents. Further, the figure reflects an improvement of 53.7% from the year-ago quarter.

Results primarily benefited from improvement in net interest income as well as non-interest income. Moreover, lower provisions supported results to quite an extent. Further, improvement in capital and profitability ratios was another positive for the company. However, elevated expenses hurt results.

Net income attributable to Commerce Bancshares was $112.6 million, up 51% from the prior-year quarter.



Revenue Growth Offsets Rise in Expenses

Total revenues for the quarter were $331.5 million, reflecting a year-over-year increase of 10.7%. In addition, the reported figure outpaced the Zacks Consensus Estimate of $330.9 million.

Net interest income was $207.8 million, rising 13.8% year over year.

Non-interest income was $123.7 million, up 5.8% year over year. This increase was driven by improvement in almost all components except capital market fees, loan fees and sales, and other income.

Non-interest expenses increased 3.3% year over year to $185.1 million. All expense components except supplies and communication, deposit insurance, and community service costs witnessed a rise.

Efficiency ratio for the quarter under review decreased to 55.73% from 59.73% reported in the year-ago quarter. Fall in efficiency ratio indicates higher profitability.

Loans Improve Marginally, Deposits Fall

As of Sep 30, 2018, total loans were $14.0 billion, up marginally from the prior-quarter level. However, total deposits, as of the same date, were $20.1 billion, down nearly 1% from the last-reported quarter.

Total stockholders’ equity was $2.8 billion as of Sep 30, 2018, reflecting rise of 1.3% from the last-reported quarter.

Credit Quality Improves

Provision for loan losses decreased 6.6% year over year to nearly $10 million in the reported quarter. Additionally, allowance for loan losses, as a percentage of total loans, came in at 1.14%, contracting 1 bps year over year. Further, the ratio of net loan charge-offs to average loans was 0.28%, down from 0.31% in the prior-year quarter.

Capital & Profitability Ratios Show Improvement

As of Sep 30, 2018, Tier I leverage ratio was 11.38%, up from 10.16% recorded in the prior-year quarter. Moreover, tangible common equity to tangible assets ratio grew to 10.10% from 9.72% as of Sep 30, 2017.

At the end of the reported quarter, return on average assets was 1.81%, up from 1.19% witnessed in the year-ago quarter. Return on average common equity was 16.43%, up from 11.35% in the year-ago quarter.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

VGM Scores

At this time, Commerce has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Commerce has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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