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Analyst Blog

On Mar 15, 2013, we reiterated our long-term recommendation on Commerce Bancshares, Inc. (CBSH - Analyst Report) at Neutral, as we believe that the risk-reward profile for the company is currently balanced. Our decision rests on the augmented top line as well as sustained growth in loans and deposits. However, we remain concerned about the company’s mounting expenses.

Why Neutral?

Commerce Bancshares’ fourth-quarter 2012 earnings came in at 72 cents, in line with the Zacks Consensus Estimate. Earnings were mainly driven by 3.6% growth in the top line in comparison with the prior quarter.

Following its fourth-quarter results, the Zacks Consensus Estimate for 2013 was up marginally to $2.85 per share over the last 60 days. Yet, the Zacks Consensus Estimate for 2014 has remained stable at $2.94 per share over the same time frame. Due to lack of directional movement in earnings estimates, Commerce Bancshares currently carries a Zacks Rank #3 (Hold).

Commerce Bancshares has maintained a steady dividend policy due to its sustained capital levels. Its balance sheet continues to remain strong, reflecting a robust capital and deposit base.

Commerce Bancshares’ financial performance is strongly influenced by the economic conditions of the markets in which it operates. However, it lacks considerable exposure in other parts of the country unlike other larger national or regional banks. This dearth of geographical diversification may cause diseconomies of scale.

On the flip side, rising competition along with declining market prices of products and services are apprehended to affect the revenues of Commerce Bancshares. Further, the new proposed capital rules by the Federal Reserve under which the banks are required to maintain a total tier 1 ratio of 7% of risk-weighted assets might affect the lending and investment abilities of Commerce Bancshares.

Other Major Banks to Consider

Other major banks that are performing better than Commerce Bancshares and worth a look include Associated Banc-Corp (ASBC - Analyst Report), Huntington Bancshares Incorporated (HBAN - Analyst Report) and TCF Financial Corporation (TCB - Analyst Report), all of which carry a Zacks Rank #2 (Buy).

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