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Analyst Blog

On Feb 26, 2014, we issued an updated research report on Commerce Bancshares, Inc. (CBSH - Analyst Report). This Midwest bank recently reported dismal fourth-quarter 2013 results with higher operating expenses, which were partially offset by increased non-interest income and lower provision for credit losses. Though the company’s strong capital base and solid liquidity position are encouraging, we remain cautious due to the macroeconomic headwinds across the industry.

Commerce Bancshares reported earnings of 69 cents per share, lagging the Zacks Consensus Estimate of 71 cents. However, this was in line with earnings posted in the year-ago quarter.

With this, the company missed the Zacks Consensus Estimate in two quarters while it delivered positive earnings surprises in the remaining quarters of 2013.

Total revenue was down nearly 1.0% year over year to $271.7 million. A lower net return on interest earning assets led to 3.7% decline in taxable equivalent net interest income to $162.2 million. Further, non-interest expense rose 1.9% to $161.3 million.

However, driven by a rise in bank card and trust fees, non-interest income was $109.5 million, up 6.0% on a year-over-year basis. Further, as of Dec 31, 2013, total loans improved 11.4% year over year to $11.0 billion while total deposits rose 3.8% year over year to $19.0 billion.

Commerce Bancshares looks promising owing to its strong balance sheet, strategic acquisitions and efficient capital deployment activities. However, we believe that mounting expenses, decline in net interest margin and the stringent regulatory landscape may pose threats to the company’s financials in the near term.

Following the results, analysts’ mixed opinions are evident from the movement of the Zacks Consensus Estimate over the past 60 days. The Estimate for 2014 advanced 0.4% to $2.84 per share. For 2015, it remained stable at $3.08 per share.

Commerce Bancshares currently carries a Zacks Rank #3 (Hold).

Stocks That Warrant a Look

Some other stocks that are worth considering in the sector include First Citizens Banc Corp. (FCZA), First Financial Corp. (THFF - Snapshot Report) and First Merchants Corp. (FRME - Snapshot Report). All of these have a Zacks Rank #1 (Strong Buy).

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