Commerce Bancshares trades at $65.13 per share and has stayed right on track with the overall market, gaining 6.5% over the last six months. At the same time, the S&P 500 has returned 6.9%.
Is CBSH a buy right now? Find out in our full research report, it’s free.
Why Does Commerce Bancshares Spark Debate?
Founded in 1865 during the post-Civil War economic boom, Commerce Bancshares (NASDAQGS:CBSH) is a Midwest-focused bank holding company that provides retail, commercial, and wealth management services to individuals and businesses.
Two Positive Attributes:
1. Increasing Net Interest Margin Juices Financials
Net interest margin represents how much a bank earns in relation to its outstanding loans. It’s one of the most important metrics to track because it shows how a bank’s loans are performing and whether it has the ability to command higher premiums for its services.
Over the past two years, Commerce Bancshares’s net interest margin averaged 3.4%. On the bright side, it climbed by 51.7 basis points (100 basis points = 1 percentage point) over that period.
This expansion was a tailwind for its net interest income, and while prevailing interest rates matter the most for industry net interest margins, banks that consistently increase this figure generally boast higher-earning loan books (all else equal such as the risk of those loans) or provide differentiated services that give them the ability to charge higher rates (pricing power).
2. Outstanding Long-Term EPS Growth
Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.
Commerce Bancshares’s EPS grew at an astounding 10.5% compounded annual growth rate over the last five years, higher than its 4.8% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.
One Reason to be Careful:
Net Interest Income Points to Soft Demand
While banks generate revenue from multiple sources, investors view net interest income as the cornerstone - its predictable, recurring characteristics stand in sharp contrast to the volatility of non-interest income.
Commerce Bancshares’s net interest income has grown at a 6.2% annualized rate over the last four years, slightly worse than the broader bank industry.
Final Judgment
Commerce Bancshares’s merits more than compensate for its flaws, but at $65.13 per share (or 2.3× forward P/B), is now the right time to buy the stock? See for yourself in our full research report, it’s free.
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