Commerce Bancshares, Inc.
) have recorded a year-to-date return of 34.0%. Impressive
organic growth, strong capital deployment activities, solid
liquidity and strategic acquisitions were the driving factors
behind this growth story. However, we are not confident that
these factors will enhance further strength down the road as
there will be considerable pressure on its bottom line owing to
the sluggish economic recovery and stringent regulatory
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After analyzing the company's fundamentals following the
third-quarter 2013 earnings release, we would suggest to stay
invested in it. However, adding fresh shares of Commerce
Bancshares to your investment portfolio may not be a good idea
given the expected headwinds.
Why This Stance?
Commerce Bancshares' third-quarter 2013 earnings per share of 75
cents beat the Zacks Consensus Estimate by 3 cents. Also,
earnings came in 3 cents higher than the prior-quarter earnings.
Better-than-expected results were driven by higher non-interest
income and lower operating expense, partly offset by a fall in
net interest income. Growth in loans and deposits were the
tailwinds for the quarter. Moreover, capital and profitability
ratios as well as credit quality were impressive and reflected
the company's financial strength.
Commerce Bancshares' capital deployment activities reflect its
efforts towards enhancing shareholder value. Apart from the
regular quarterly cash dividend, the company declared a stock
dividend. Moreover, it has an effective share repurchase program
in place. As of Sep 30, 2013, there were about 3.5 million shares
remaining under the current buyback authorization of 4.0 million
However, Commerce Bancshares' bottom-line growth is expected to
be sluggish in the next few quarters due to its elevated
operating expenses. Operating expenses increased 1.2% to $468.3
million for the nine months ended Sep 30, 2013 compared with the
prior-year period. Moreover, regulatory pressure will
significantly lower fees from overdraft and credit card
transactions in the near to mid term.
The company has seen a mixed track record when it comes to
estimate revisions and the Zacks Consensus Estimate has not been
in a trend either. As a result, the company currently carries a
Zacks Rank #3 (Hold). Over the last 30 days, the Zacks Consensus
Estimate for 2013 and 2014 remained stable at $2.75 and $2.83 per
Other Stocks to Consider
If you are interested in Mid-West Banks, you may consider a few
better-ranked stocks like
First Interstate Bancsystem Inc.
German American Bancorp Inc.
Mainsource Financial Group
). All these stocks carry a Zacks Rank #1 (Strong Buy).