Commerce Bancshares, Inc. CBSH remains well-poised for revenue growth, supported by continued improvement in loans and deposits. Moreover, its efforts to grow fee income will likely support the top line.
However, elevated operating expenses are expected to hamper bottom-line growth to an extent in the near term.
The company’s earnings estimates for 2019 have been 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).
Looking at its price performance, shares of the company have gained 17.8% so far this year, outperforming the industry’s growth of 15.2%.
Notably, Commerce Bancshares’ net yield on interest-earning assets improved over the last three years — 3.53% in 2018, 3.19% in 2017 and 3.04% in 2016. In fact, despite the recent decline in rates, the company’s net yield on interest-earning assets is expected to be positively impacted in the near term, given the consistent rise in loan demand.
Moreover, it is engaged in impressive capital deployment activities. Given a strong capital position, earnings strength and almost negligible debt; it is expected to continue boosting shareholder value through consistent share repurchases and dividend payments.
However, mounting non-interest expenses continue to be a concern for the company. Expenses witnessed a CAGR of 3.2% over the last six years (2013-2018). The rise was mainly due to higher salaries and employee benefits costs. Moreover, costs are expected to remain elevated, owing to the company’s strategy to invest in franchise.
Further, its significant exposure to revolving home equity and real estate loans is a concern. As of Sep 30, 2019, exposure to these loan portfolios was 43.8% of total loans. Though there has been an improvement in the housing sector, any further deterioration in real estate prices will pose a problem for the company.
Stocks to Consider
A few better-ranked stocks from the finance space are Hercules Capital, Inc HTGC, Ares Capital Corporation ARCC and On Deck Capital, Inc ONDK. All these stocks currently carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Hercules Capital’s Zacks Consensus Estimate for current-year earnings has been revised 2.9% upward over the past 30 days. The company’s shares have gained 7.9% in the past three months.
Ares Capital’s earnings estimates for the current year have been revised 1.6% upward over the past 30 days. Its shares have gained marginally in the past three months.
Over the past 30 days, On Deck Capital has witnessed an upward earnings estimate revision of 9.4% for the current year. Additionally, the stock has gained 25.2% in the past three months.
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