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Loan Growth Aids Commerce Bancshares (CBSH) Amid Lower Rates
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Commerce Bancshares, Inc. (CBSH - Free Report) continues to benefit from solid organic growth and its capital-deployment activities are likely to boost the company’s shareholder value. However, high debt levels and near-zero interest rates are major near-term concerns.
Commerce Bancshares’ organic growth is impressive.The company’s net revenues witnessed a five-year (2015-2019) CAGR of 6.2%. This upside was mainly attributed to higher loan and deposit balances. Rise in demand for loans and the company’s efforts to focus on fee income sources are likely to continue driving revenues in the quarters ahead.
Moreover, the company’s capital-deployment activities are attractive for investors. The bank has been consistently paying a 5% stock dividend for more than a decade now. Apart from this, Commerce Bancshares pays regular quarterly cash dividends and has a share-repurchase program in place. Given the earnings strength, the company will likely be able to sustain the current capital-deployment plan.
Further, the Zacks Consensus Estimate for earnings has been revised marginally upward for 2020 and 1.1% upward for 2021 over the past week. Also, shares of this Zacks Rank #3 (Hold) company have gained 9.7% over the past year, as against the 20.5% decline recorded by the industry.
However, persistent low interest rates are a concern for Commerce Bancshares. Although the net yield on interest earning assets witnessed an uptrend over the last three years, the same declined in 2019. This was mainly due to flattening of the yield curve and fall in interest rates. Net yield on interest earning assets is expected to remain under pressure due to the Federal Reserve’s accommodative money policy and lower interest rates.
Moreover, Commerce Bancshares’ high debt levels are worrisome. As of Mar 31, 2020, it had total debt worth $2.18 billion, significantly higher than cash and cash equivalents and due from banks of $401.2 million. Further, it’s times-interest-earned of 17.87 and total debt to total capital of 18.9% in first-quarter 2020 declined on a sequential basis. Thus, the company has a higher credit risk and might be unable to make debt repayments if the economic situation worsens.
Stocks to Consider
Mercantile Bank Corp. (MBWM - Free Report) has witnessed an upward earnings estimate revision of 5.5% for 2020 over the past 30 days. Its shares have lost 32.3% over the past year. At present, it sports a Zacks Rank of 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
BlackRock, Inc. (BLK - Free Report) has recorded an upward earnings estimate revision of 3% for the ongoing year over the past 30 days. Its shares have gained 19.7% over the past year. At present, it sports a Zacks Rank of 1.
BrightSphere Investment Group Inc. (BSIG - Free Report) recorded an upward earnings estimate revision of 2.2% for the current year over the past 30 days. Its shares have depreciated 11.3% over the past year. It currently flaunts a Zacks Rank of 1.
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Loan Growth Aids Commerce Bancshares (CBSH) Amid Lower Rates
Commerce Bancshares, Inc. (CBSH - Free Report) continues to benefit from solid organic growth and its capital-deployment activities are likely to boost the company’s shareholder value. However, high debt levels and near-zero interest rates are major near-term concerns.
Commerce Bancshares’ organic growth is impressive.The company’s net revenues witnessed a five-year (2015-2019) CAGR of 6.2%. This upside was mainly attributed to higher loan and deposit balances. Rise in demand for loans and the company’s efforts to focus on fee income sources are likely to continue driving revenues in the quarters ahead.
Moreover, the company’s capital-deployment activities are attractive for investors. The bank has been consistently paying a 5% stock dividend for more than a decade now. Apart from this, Commerce Bancshares pays regular quarterly cash dividends and has a share-repurchase program in place. Given the earnings strength, the company will likely be able to sustain the current capital-deployment plan.
Further, the Zacks Consensus Estimate for earnings has been revised marginally upward for 2020 and 1.1% upward for 2021 over the past week. Also, shares of this Zacks Rank #3 (Hold) company have gained 9.7% over the past year, as against the 20.5% decline recorded by the industry.
However, persistent low interest rates are a concern for Commerce Bancshares. Although the net yield on interest earning assets witnessed an uptrend over the last three years, the same declined in 2019. This was mainly due to flattening of the yield curve and fall in interest rates. Net yield on interest earning assets is expected to remain under pressure due to the Federal Reserve’s accommodative money policy and lower interest rates.
Moreover, Commerce Bancshares’ high debt levels are worrisome. As of Mar 31, 2020, it had total debt worth $2.18 billion, significantly higher than cash and cash equivalents and due from banks of $401.2 million. Further, it’s times-interest-earned of 17.87 and total debt to total capital of 18.9% in first-quarter 2020 declined on a sequential basis. Thus, the company has a higher credit risk and might be unable to make debt repayments if the economic situation worsens.
Stocks to Consider
Mercantile Bank Corp. (MBWM - Free Report) has witnessed an upward earnings estimate revision of 5.5% for 2020 over the past 30 days. Its shares have lost 32.3% over the past year. At present, it sports a Zacks Rank of 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
BlackRock, Inc. (BLK - Free Report) has recorded an upward earnings estimate revision of 3% for the ongoing year over the past 30 days. Its shares have gained 19.7% over the past year. At present, it sports a Zacks Rank of 1.
BrightSphere Investment Group Inc. (BSIG - Free Report) recorded an upward earnings estimate revision of 2.2% for the current year over the past 30 days. Its shares have depreciated 11.3% over the past year. It currently flaunts a Zacks Rank of 1.
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2019, while the S&P 500 gained and impressive +53.6%, five of our strategies returned +65.8%, +97.1%, +118.0%, +175.7% and even +186.7%.
This outperformance has not just been a recent phenomenon. From 2000 – 2019, while the S&P averaged +6.0% per year, our top strategies averaged up to +54.7% per year.
See their latest picks free >>