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Commerce Bancshares (CBSH) Up 3.7% Since Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Commerce Bancshares, Inc. (CBSH - Free Report) . Shares have added about 3.7% in that time frame.

Will the recent positive trend continue leading up to its next earnings release, or is CBSH 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 catalysts.

Commerce Bancshares Beats on Q1 Earnings as Revenues Improve

Commerce Bancshares’ first-quarter 2018 earnings per share of 92 cents surpassed the Zacks Consensus Estimate of 80 cents. Also, the figure reflects an improvement of 41.5% from the year-ago quarter.

Results primarily benefited from an improvement in both net interest income as well as non-interest income. Also, a decrease in provisions was a tailwind. Further, the company’s capital and profitability ratios improved during the quarter. However, higher expenses acted as a headwind.

Net income attributable to Commerce Bancshares was $101 million, up from $71.5 million recorded in the prior-year quarter.

Revenue Growth Offsets Rise in Costs

Total revenues for the quarter were $312.6 million, reflecting an increase of 8.6% year over year. Also, the figure surpassed the Zacks Consensus Estimate of $310.6 million.

Net interest income was $192.9 million, increasing 8.2% year over year. Further, net interest margin was 3.37%, up 24 basis points (bps) year over year. The rise reflects an increase in interest earned on loan portfolio and stable funding cost.

Non-interest income was $119.7 million, up 9.2% year over year. The rise was primarily driven by an improvement in all components except capital market fees, loan fees and sales along with other income.

Non-interest expenses rose 1.6% year over year to $182.3 million. The increase was largely due to a rise in salaries and employee benefits cost, net occupancy cost, data processing and software costs, and marketing costs.

Efficiency ratio for the quarter decreased to 58.21% from 62.19% in the prior-year quarter. A fall in efficiency ratio indicates higher profitability.

Balance Sheet Position

As of Mar 31, 2018, total loans were nearly $13.9 billion, down marginally from the prior-quarter level. However, total deposits, as of the same date, were $20.5 billion, increasing marginally from the prior quarter.

Total stockholders’ equity was $2.7 billion as of Mar 31, 2018, reflecting a marginal decline of 0.5% from the previous quarter.

Credit Quality: A Mixed Bag

Provision for loan losses decreased 6.6% year over year to $10.4 million in the reported quarter. Also, allowance for loan losses, as a percentage of total loans, was 1.15%, down 1 bps year over year.

However, net loan charge-offs to average loans ratio (excluding loans held for sale) increased 2 bps year over year to 0.30%.

Improving Capital & Profitability Ratios

As of Mar 31, 2018, Tier I leverage ratio was 10.84%, up from 9.56% in the prior-year quarter. Moreover, tangible common equity to tangible assets ratio grew to 9.88% from 9.03% as of Mar 31, 2017.

Further, the company’s return on average assets was 1.66%, increasing from 1.15% in the year-ago quarter. Return on average common equity was 15.58% at the end of the reported quarter, up from 11.74% in the year-ago quarter.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. There have been seven revisions higher for the current quarter. Last month, the consensus estimate has shifted by 6.1% due to these changes.

Commerce Bancshares, Inc. Price and Consensus

 

VGM Scores

At this time, CBSH has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

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

Zacks' style scores indicate that the company's stock is suitable for growth and momentum investors.

Outlook

Estimates have been trending upward for the stock and the magnitude of these revisions looks promising. It comes with little surprise CBSH 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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