Commerce Bancshares, Inc. CBSH remains well positioned for revenue growth, supported by the continued rise in loan balances along with higher rates. However, elevated expenses are likely to hurt bottom-line growth.
The company’s earnings estimates for 2018 have remained unchanged over the past 30 days, reflecting that analysts are not very optimistic regarding its earnings growth potential. Thus, the stock currently carries a Zacks Rank #3 (Hold).
Its price performance does not seem very impressive as well. Shares of the company have inched up 0.4% so far this year against the industry’s decline of 19.1%.
Looking at its fundamentals, net revenues witnessed a CAGR of 4.9% over the last four years (2014-2017), with the trend continuing during the first nine months of 2018 as well. Given the consistent improvement in non-interest income — along with impressive loan and deposit balances as well as higher interest rates — the company’s top line is expected to improve further.
Moreover, Commerce Bancshares’ net yield on interest earning assets has improved over the last three years, with the same trend continuing in the first nine months of 2018. Given the latest rate hikes and consistent rise in loan demand, the company’s margins are likely to be favorably impacted in the future.
Further, given a strong capital position, earnings strength and almost negligible debt, the company is expected to continue boosting shareholder value through efficient capital deployment activities.
However, mounting non-interest expenses continue to be a concern for the company. Over the last six years (2012-2017), expenses increased at a CAGR of 4.5%, with the trend continuing in the first nine months of 2018 as well. Higher expenses mainly due to rise in salaries and employee benefits costs, as well as the company’s strategy to invest in franchise, are likely to hurt profits in the months ahead.
Further, the company’s significant exposure to revolving home equity and real estate loans is a concern. As of Sep 30, 2018, exposure to these loan portfolios was 44.6% of total loans. Though there has been an improvement in the housing sector, any further deterioration in the real estate prices will pose a problem for the company.
Stocks to Consider
A few better-ranked stocks from the finance space are On Deck Capital, Inc. ONDK, Credit Acceptance Corp. CACC and Ally Financial Inc. ALLY.
On Deck Capital currently sports a Zacks Rank #1 (Strong Buy). Over the past 60 days, it has witnessed an upward earnings estimate revision of 22.7% for the current year. Additionally, the stock has gained 30% in the past two years.
Credit Acceptance’s earnings estimates for the current year have been revised 3.4% upward over the past 60 days. Its shares have surged 64.1% in the past two years. The stock currently sports a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Over the past 60 days, Ally Financial’s earnings estimates for the current year have been revised 1.3% upward. The company’s shares have increased 4.4% in the past two years. The stock currently carries a Zacks Rank #2 (Buy).
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