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Commerce (CBSH) Up 11.1% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Commerce Bancshares (CBSH - Free Report) . Shares have added about 11.1% 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 its most recent earnings report in order to get a better handle on the important drivers.

Commerce Bancshares Q3 Earnings Beat, Revenues Rise Y/Y

Commerce Bancshares’ third-quarter 2020 earnings of $1.11 per share surpassed the Zacks Consensus Estimate of 70 cents. Also, the bottom line came in 19.4% higher than the prior-year quarter reported figure.

Results benefited from improvement in net-interest income, and fall in expenses and provisions. Moreover, the company’s balance-sheet position remained strong in the quarter. However, lower non- interest income is a concern for the company.

Net income attributable to common shareholders was $125 million, up 16.8% from the prior-year quarter.

Revenues Climb, Expenses Decline

Total revenues were $345.5 million, up 2.8% from the prior-year quarter. Moreover, the top line outpaced the Zacks Consensus Estimate of $326.6 million.

Net interest income came in at $216 million, up 6.1% year over year. Net yield on interest-earning assets contracted 46 basis points (bps) to 2.97% from the prior-year quarter.

Non-interest income was $129.6 million, reflecting a decline of 2.4% year over year. This was mainly due to fall in almost all fee income components, except for loan fees and sales, trust fees and capital market fees.

Non-interest expenses marginally dropped year over year to $190.9 million, primarily on lower marketing, supplies and communication, net occupancy, equipment and other costs. This was partially offset by increase in salaries and employee benefit expenses and data processing and software costs.

The efficiency ratio decreased to 55.00% from 56.66% reported in the year-ago quarter. A fall in efficiency ratio indicates higher profitability.

Strong Balance Sheet

As of Sep 30, 2020, total loans were $16.4 billion, flat quarter on quarter. Total deposits as of the same date were $25.7 billion, up 4.8% sequentially.

Total stockholders’ equity was $3.3 billion as of Sep 30, 2020, reflecting a fall of 1.6% from the prior quarter’s end.

Credit Quality Improves

Provision for credit losses for the reported quarter came in at $3.1 million, slumping 71.2% from the $11 million recorded in the prior-year quarter.

The ratio of annualized net loan charge-offs to total average loans was 0.18%, down from the prior-year quarter’s 0.32%.

Capital & Profitability Ratios Deteriorate

As of Sep 30, 2020, Tier I leverage ratio was 9.39%, down from the 11.32% recorded in the year-ago quarter. Also, tangible common equity to tangible assets ratio declined to 10.11% from the prior-year quarter’s 10.95%.

At the end of the third quarter, return on average assets was 1.71%, down from the year-ago period’s 1.72%. Return on average common equity was 15.21%, down from the 14.21% recorded in the prior-year quarter.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month. The consensus estimate has shifted 18.52% due to these changes.

VGM Scores

At this time, Commerce has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.

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

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Commerce has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.


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