Commerce Bancshares Inc. CBSH shares have been performing remarkably well of late. At present, the stock is trading near its 52-week high of $72.74 hit during Monday’s trading session.
Over the past month, CBSH stock has risen 19.9%, outperforming the industry and the Zacks Finance Sector. Also, the company’s shares have performed better than its close peers — Bank OZK OZK and Old National Bancorp ONB.
One-Month Price Performance
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Does CBSH stock have more upside left despite hitting a 52-week high? Let’s try to decipher that.
Factors to Impact Commerce Bancshares Stock Performance
Presidential Election Results to Aid Revenues: On Nov. 5, the U.S. presidential elections were held, resulting in a victory for Donald Trump. The expansionary stance of the President-elect fueled the equity markets rally, with the S&P 500 index hitting an all-time high and crossing the 6,000 mark for the first time on Friday.
The expansionary stance and enhanced focus on domestic manufacturing will likely boost loan demand and drive CBSH’s net interest income (NII) higher. Further, this will aid the company’s fee income as well. Moreover, anticipated tax cuts will likely boost profitability.
Additionally, the Federal Reserve has started lowering interest rates (50 basis points or bps cut announced in September and 25 bps last week). This, along with future rate cuts, will support NII as funding costs gradually stabilize and then come down.
CBSH’s total revenues witnessed a compound annual growth rate (CAGR) of 3.5% over the last four years (2018-2023). Loans witnessed a 4% CAGR over the same period. The uptrend in revenues and loans persisted during the first nine months of 2024.
Quarterly Revenue Trend
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In May, Commerce Bancshares announced a balance sheet repositioning strategy. Under this, the company sold its debt securities and reinvested the proceeds at higher yields. This will, thus, boost its NII. This, along with decent loan demand and solid non-interest income performance, will likely keep driving the company’s top-line growth.
Sales Estimates Trend
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Solid Balance Sheet Position: As of Sept. 30, 2024, CBSH’s total cash and cash equivalents (consisting of cash and due from banks and interest-earning deposits with banks) were $3.1 billion. Total debt (comprising other liabilities and other borrowings) was $620 million.
Further, the bank has a loan-to-deposit ratio of 70.2% as of Sept. 30, 2024, indicating a strong liquidity position. Further, CBSH’s core deposits accounted for 89.6% of its total deposits at the end of the third quarter of 2024. This reflected a stable deposit balance and an enhanced liquidity profile.
Deposit Segregation
Commerce Bancshares Inc.
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Additionally, the company maintains investment grade ratings of A- and a stable outlook from Standard & Poor’s. Hence, a solid liquidity position allows the company to address its near-term obligations.
Strong Capital Position: As of Sept. 30, 2024, CBSH’s Tier 1 common risk-based ratio and the total risk-based capital ratio of 16.7% and 17.5%, respectively, were well above the regulatory requirements.
Commerce Bancshares’ focus on maintaining a strong capital position supports its capital distribution activities. The company has been paying a 5% stock dividend for more than 25 years, with the most recent one announced in October.
Further, the company has been consistently paying quarterly cash dividends. The bank hiked dividends eight times during the last five years with a dividend payout ratio of 28%.
Dividend Yield
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Similarly, OZK increased its dividend 20 times over the past five years, while ONB raised its dividend only once over the same time frame.
Also, CBSH has a share repurchase plan. As of Sept. 30, 2024, roughly 3.6 million shares remained available for repurchase under the authorization.
Rising Operating Expenses: CBSH has been witnessing a continuous increase in non-interest expenses. Expenses recorded a CAGR of 4.8% over the last five years ended 2023, primarily driven by higher compensation and employee benefit costs. The uptrend persisted in the first nine months of 2024.
Expense Growth Trend
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Expenses are anticipated to stay elevated amid the bank’s ongoing technological upgrades and inflationary pressures.
Bullish Analyst Sentiments
Over the past week, the Zacks Consensus Estimate for earnings of $4.02 and $3.87 per share for 2024 and 2025, respectively, moved marginally upward.
Estimate Revision Trend
Zacks Investment Research
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The projected figures imply growth of 10.4% for 2024 and a decline of 3.8% for 2025.
Final Thoughts on CBSH Stock
Decent loan demand, relatively high rates and a solid balance sheet are likely to support Commerce Bancshares’ financials. Moreover, the incoming regime’s expansionary moves will further complement the bank’s growth initiatives to boost its top line. However, rising expenses remain a concern. Thus, CBSH stock remains a cautious bet for investors now. Those who already own it can hold it for now.
CBSH currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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