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Commerce (CBSH) Up 4.1% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Commerce Bancshares (CBSH - Free Report) . Shares have added about 4.1% 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’ Q1 Earnings Lag Estimates on Higher Expenses

Commerce Bancshares reported first-quarter 2019 earnings per share of 85 cents, which lagged the Zacks Consensus Estimate of 91 cents. Moreover, the figure compared unfavorably with the prior-year quarter’s earnings of 88 cents.

Results were primarily hurt by an increase in expenses and higher provisions. Moreover, the company’s profitability worsened during the quarter. However, an increase in net interest income as well as non-interest income was a positive.

Net income attributable to common shareholders was $94.9 million, down 3.9% from the prior-year quarter.

Revenues Improve, Expenses Rise

Total revenues for the quarter under review were $324.7 million, reflecting a year-over-year increase of 3.9%. However, the reported figure missed the Zacks Consensus Estimate of $334 million.

Net interest income for the quarter was $203.5 million, up 5.5% year over year.

Non-interest income was $121.2 million, up 1.3% year over year. This upside stemmed from an improvement in almost all components of fee income except for bank card transaction fees, capital market fees and consumer brokerage service fee.

Non-interest expenses increased 5% year over year to $191.4 million. The rise was due to an increase in almost all expense components except for deposit insurance, supplies and communication, and net occupancy costs.

Efficiency ratio for the quarter under review increased to 58.76% from 58.21% reported in the year-ago quarter. Rise in efficiency ratio indicates lower profitability.

Strong Balance Sheet

As of Mar 31, 2019, total loans were $14.1 billion, down marginally from the prior-quarter level. Total deposits as of the same date were nearly $20 billion, down 1.7% from the previous quarter.

Total stockholders’ equity was $3 billion as of Mar 31, 2019, reflecting improvement from $2.9 billion in the prior quarter.

Credit Quality: A Mixed Bag

Provision for loan losses for the reported quarter was $12.5 million, up 19.9% year over year. Moreover, the ratio of net loan charge-offs to average loans was 0.34%, up from 0.30% witnessed in the prior-year quarter.

However, allowance for loan losses as a percentage of total loans was 1.14%, down 1 bps year over year.

Capital Ratios Improve, Profitability Ratios Deteriorates

As of Mar 31, 2019, Tier I leverage ratio was 11.67%, up from 10.84% recorded in the year-ago quarter. Moreover, tangible common equity to tangible assets ratio grew to 11.06% from 9.88%.

At the end of the reported quarter, return on average assets was 1.58%, down from 1.66% witnessed in the year-ago quarter. Return on average common equity was 13.64%, down from 15.58% in the prior-year quarter.

Share Repurchase Update

Commerce Bancshares repurchased nearly 0.6 million shares of treasury stock during the reported quarter at an average price of $61.35 per share.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

Currently, Commerce 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 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. It's no surprise Commerce has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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