Piper Sandler kept its Neutral stance on Commerce Bancshares (NASDAQ:CBSH), maintaining a price target of $68.50. The firm anticipates that while the bank will continue to deliver strong profitability metrics, earnings per share (EPS) growth could be challenging next year due to potential further net interest margin (NIM) compression, given the bank's asset sensitivity.
Commerce Bancshares' defensive qualities, such as its pristine credit profile, revenue diversity, and robust profitability, were acknowledged. Despite these strengths, Piper Sandler expressed skepticism regarding the likelihood of CBSH's premium multiples expanding in a scenario characterized by increased risk appetite and lower short-term interest rates.
The firm updated its fourth-quarter 2024 EPS estimate for Commerce Bancshares to $1.03, a slight increase of $0.02, reflecting higher core fee income expectations. The 2025 EPS estimate remains unchanged at $3.80, and a 2026 estimate of $3.95 has been established. The price target of $68.50 is derived from applying an 18.0 times multiple to the firm's 2025 EPS estimate, aligning with Commerce Bancshares' historical long-term premium over its peers, which is currently 13.6 times.
The analysis by Piper Sandler suggests a cautious outlook for Commerce Bancshares, emphasizing the bank's solid fundamentals but also noting the challenges it may face in enhancing shareholder value under the current market conditions. The firm's estimates and price target are based on projected earnings and historical valuation trends.
Commerce Bancshares outperformed third quarter earnings and revenue estimates. The company reported earnings of $1.07 per share, surpassing the analyst consensus estimate of $1.01. This is an increase from the $0.92 per share reported in the same quarter last year. Revenue for the quarter was $421.4 million, exceeding the consensus estimate of $419.72 million, and marking an increase from the $391.5 million reported in the third quarter of 2023.
Furthermore, the company experienced a growth in non-interest income, which rose 11.2% year-over-year to $159.0 million. This rise was primarily driven by higher trust fees, capital market fees, and deposit account fees. Credit quality remained robust, with non-accrual loans steady at 0.11% of total loans.
InvestingPro Insights
Recent data from InvestingPro adds depth to Piper Sandler's analysis of Commerce Bancshares (NASDAQ:CBSH). The company's P/E ratio of 16.07 aligns with Piper Sandler's observation of premium multiples, while the revenue growth of 4.99% over the last twelve months supports the firm's view on the bank's solid performance.
InvestingPro Tips highlight CBSH's strong dividend history, having maintained payments for 54 consecutive years and raised them for 10 years straight. This underscores the bank's financial stability, which Piper Sandler noted as a defensive quality. However, the tip indicating that three analysts have revised their earnings downwards for the upcoming period corroborates Piper Sandler's concerns about potential challenges in EPS growth.
The current dividend yield of 1.77% and the company's high shareholder yield, as pointed out by InvestingPro Tips, may provide some cushion for investors in the face of potential earnings pressure. These insights complement Piper Sandler's analysis, offering a broader perspective on CBSH's financial health and market position.
For investors seeking a more comprehensive analysis, InvestingPro offers additional tips and metrics to further evaluate Commerce Bancshares' investment potential.
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