A month has gone by since the last earnings report for Commerce Bancshares, Inc. CBSH. Shares have added about 2.1% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Commerce Bancshares Q2 Earnings Beat on Improved Revenues
Commerce Bancshares’ second-quarter 2017 earnings of $0.75 per share easily surpassed the Zacks Consensus Estimate of $0.70. The figure reflects a 13.6% rise from the year-ago quarter.
Better-than-expected results were mainly driven by higher net interest income and non-interest income. Also, the company witnessed a modest loan growth and its capital and profitability ratios improved. However, a rise in expenses and provision for loan losses were the undermining factors.
Net income available to the common shareholders in the reported quarter was $76.7 million, up 13.4% year over year.
Rise in Costs Offset by Higher Revenues
Total revenue for the quarter was $305.9 million, an increase of 6.1% year over year. Also, the figure beat the Zacks Consensus Estimate of $303.6 million.
Net interest income increased 6.4% from the prior-year quarter to $182.8 million. Further, net interest margin was 3.19%, up 8 basis points (bps) year over year. The rise reflected an increase in interest earned on loan portfolio and stable funding cost.
Non-interest income was $123.1 million, up 5.6% year over year. The rise was mainly driven by higher loan fees and sales, trust fees, and deposit account charges and other fees.
Non-interest expenses rose 4.2% year over year to $184.6 million. The increase was largely due to a rise in salaries and employee benefit costs, deposit insurance, and data processing and software costs.
Efficiency ratio for the quarter declined to 60.24% from 61.27% in the prior-year quarter. A fall in efficiency ratio indicates improved profitability.
Strong Balance Sheet
As of Jun 30, 2017, total loans were $13.6 billion, up marginally on a sequential basis. However, total deposits, as of the same date, were $20.8 billion, down 1.3% from the prior month.
However, total stockholder’s equity was $2.62 billion as of Jun 30, 2017, a decline of 1.4% from the previous month.
Credit Quality Worsens
Provision for loan losses increased 16.7% year over year to $10.8 million. Net loan charge-offs to average loans ratio (excluding loans held for sale) increased 8 bps year over year at 0.32%.
However, allowance for loan losses, as a percent of total loans, came in at 1.16%, down 2 bps year over year.
Improving Profitability & Capital Ratios
As of Jun 30, 2017, Tier I leverage ratio was 9.87%, up from 9.36% from the prior-year quarter. Moreover, tangible common equity to tangible assets ratio grew from 9.09% as of Jun 30, 2016 to 9.37%.
Further, the company’s return on average assets was 1.26%, up from 1.15% in the year-ago quarter. Return on average common equity was 12.47% as of Jun 30, 2017, increasing from 11.69% in the last-year 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.
Commerce Bancshares, Inc. Price and Consensus
Commerce Bancshares, Inc. Price and Consensus | Commerce Bancshares, Inc. Quote
At this time, Commerce Bancshares' stock has an poor Growth Score of F, however its Momentum is doing a bit better with a D. The stock was allocated a grade of C on the value side, putting it in the middle 20% 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.
Based on our scores, the stock is solely suitable for value investors.
Estimates have been trending upward for the stock. The magnitude of these revisions also looks promising. It comes with little surprise that the stock has a Zacks Rank #2 (Buy). We are expecting an above average return from the stock in the next few months.
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