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Why Is Commerce (CBSH) Up 2.8% Since Last Earnings Report?

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It has been about a month since the last earnings report for Commerce Bancshares (CBSH). Shares have added about 2.8% in that time frame, underperforming 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 the most recent earnings report in order to get a better handle on the important catalysts.

Commerce Bancshares’ Q4 Earnings Beat on Higher Revenues

Commerce Bancshares reported earnings per share of 96 cents which surpassed the Zacks Consensus Estimate by a penny. The figure also reflects an improvement of 17.1% from the year-ago tally.

Results primarily benefited from improvement in total revenues. Moreover, lower provisions and non-interest expenses supported the bottom line to quite an extent. Improvement in capital and profitability ratios was another positive for the company.

Net income attributable to common shareholders was $109.7 million, up 16.2% from the prior-year quarter.

Earnings per share for 2018 came in at $3.78, up 37% from the prior year. The figure also outpaced the Zacks Consensus Estimate of $3.77. Net income available to common shareholders was $424.5 million, up 36.8% from 2017.

Revenues Grow, Expenses Decline

Total revenues for the quarter came in at $345.3 million, reflecting a year-over-year increase of 11.6%. In addition, the reported figure outpaced the Zacks Consensus Estimate of $335.7 million.

Total revenues for 2018 were $1.33 billion, reflecting a year-over-year increase of 10.9%. The annual revenue figure, however, lagged the Zacks Consensus Estimate of $1.37 billion.

Net interest income for the quarter came in at $212.2 million, up 11.7% year over year.    

Non-interest income was $133.1 million, up 11.5% year over year. This upside stemmed from improvement in almost all components except loan fees and sales.

Non-interest expenses decreased 9.7% year over year to $188.6 million. Other than salaries and employee benefits, marketing and data processing, and software, all expense components declined.

Efficiency ratio for the quarter under review decreased to 54.53% from 67.40% reported in the year-ago quarter. Fall in efficiency ratio indicates improvement in profitability.

Loans & Deposits Improve Marginally

As of Dec 31, 2018, total loans were $14.1 billion, up 1.1% from the prior-quarter level. Also, total deposits, as of the same date, were $20.3 billion, up marginally from the previous quarter.

Total stockholders’ equity was $2.9 billion as of Dec 31, 2018, reflecting rise of 8% from the third quarter.

Credit Quality: A Mixed Bag

Provision for loan losses decreased 3.1% year over year to $12.3 million for the quarter under review. Additionally, allowance for loan losses, as a percentage of total loans, came in at 1.13%, contracting 1 bps year over year.

However, the ratio of net loan charge-offs to average loans was 0.34%, up from 0.32% witnessed in the prior-year quarter.

Capital & Profitability Ratios Improve

As of Dec 31, 2018, Tier I leverage ratio was 11.52%, up from 10.39% recorded in the year-earlier quarter. Moreover, tangible common equity to tangible assets ratio grew to 10.45% from 9.84% as of Dec 31, 2017.

At the end of the reported quarter, return on average assets was 1.75%, up from 1.50% witnessed in the year-ago quarter. Return on average common equity was 15.85%, up from 14.17% 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 $61.63 per share.

How Have Estimates Been Moving Since Then?

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

VGM Scores

At this time, Commerce has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. However, 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 C. 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. Notably, Commerce has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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