Commerce Bancshares (NasdaqGS:CBSH) - Share price, News & Analysis

Q: What is the Fair Price of CBSH when looking at its future cash flows? For this estimate we use a Discounted Cash Flow model.

CBSH ($73.82) is trading below our estimate of [[fair value]] ($110.28)

CBSH fundamental analysis
Snowflake Score
Valuation	2/6
Future Growth	1/6
Past Performance	2/6
Financial Health	6/6
Dividends	4/6

CBSH Stock Overview

Rewards

Trading at 33.1% below our estimate of its fair value

Earnings are forecast to grow 4.92% per year

Risk Analysis

No risks detected for CBSH from our risk checks.

Commerce Bancshares Competitors

Webster Financial

NYSE:WBS

US$8.8b

Zions Bancorporation National Association

NasdaqGS:ZION

US$8.9b

Cullen/Frost Bankers

NYSE:CFR

US$9.0b

East West Bancorp

NasdaqGS:EWBC

US$10.9b

Price History & Performance

Summary of all time highs, changes and price drops for Commerce Bancshares
Historical stock prices
Current Share Price	US$73.82
52 Week High	US$74.72
52 Week Low	US$61.81
Beta	0.80
1 Month Change	11.26%
3 Month Change	9.88%
1 Year Change	11.27%
3 Year Change	49.79%
5 Year Change	73.29%
Change since IPO	2,345.50%

Recent News & Updates

Aug 12

Commerce Bancshares: Topline Outlook Is Rosy But Stock Appears Overvalued

Loan growth will decelerate due to high interest rates and falling consumer confidence. Nevertheless, it will remain near the historical average thanks to commercial loans. The top line is only moderately sensitive to rate changes. Higher interest rates will continue to drag the equity book value per share, which will hurt equity valuation. The December 2022 target price suggests a significant downside from the current market price. Further, CBSH is offering a low dividend yield. Moderate loan growth that's in line with the historical average will likely support the earnings of Commerce Bancshares, Inc. (CBSH) through the end of 2023. Further, the moderately rate-sensitive topline will benefit from higher interest rates. On the other hand, higher net provision expense will drag earnings. Overall, I'm expecting Commerce Bancshares to report earnings of $3.97 per share for 2022, down 8% year-over-year. Compared to my last report on the company, I've tweaked upwards my earnings estimate mostly because I've increased both my loan growth and margin estimates. The year-end target price suggests a significant downside from the current market price. Based on the total expected return, I'm adopting a hold rating on Commerce Bancshares. Loan Growth To Decelerate Commerce Bancshares loan growth continued to beat my expectations in the second quarter of 2022. The portfolio grew by 1.5% in the second quarter of 2022, bringing the first half growth to 3.5% (7% annualized). Around 63% of the loan portfolio is made up of commercial loans, as mentioned in the earnings presentation. Therefore, the purchasing managers’ index is a good gauge for product demand. Although the index has recently been on a downtrend, it is still in expansionary territory (above 50), which bodes well for loan growth. US ISM Services PMI data by YCharts For consumer loans, the outlook is less bright. The consumer confidence index has continued to drop so far this year. Moreover, due to high interest rates, consumers wanting to borrow for less pressing expenditures will prefer to wait until borrowing costs decline. The Conference Board Considering these factors, I'm expecting loan growth to return to the historical norm of the mid-single-digit range for the second half of 2022 and the full year of 2023. In my last report, I anticipated loan growth of 5.1% for 2022. I have now decided to tweak it upwards to 5.6% mostly because of the second quarter’s performance. Book Value Has Taken A Hit from Higher Interest Rates The surge in interest rates so far this year has eroded Commerce Bancshares’ equity book value. This is because increase in rates decreased the value of fixed-rate investment securities. This unrealized loss flowed directly into equity bypassing the income statement. By the end of June 2022, the book value per share had declined by $2.31 from the end of March 2022 and $6.18 from the end of June 2021, as mentioned in the earnings presentation. Going forward, further equity book value erosion is on the cards as I'm expecting the federal funds rate to increase by a further 75 basis points in the remainder of the year, before plateauing and then trending downwards in the second half of 2023. The following table shows my balance sheet estimates. FY18 FY19 FY20 FY21 FY22E FY23E Financial Position Net Loans 13,980 14,577 16,109 15,026 15,861 16,505 Growth of Net Loans 1.1% 4.3% 10.5% (6.7)% 5.6% 4.1% Other Earning Assets 10,113 9,988 15,288 20,299 16,280 16,941 Deposits 20,324 20,520 26,947 29,813 28,567 29,727 Borrowings and Sub-Debt 1,965 1,853 2,099 3,036 2,152 2,239 Common equity 2,787 2,990 3,397 3,437 2,840 3,223 Book Value Per Share ($) 24.8 26.0 29.1 28.4 23.7 26.9 Tangible BVPS ($) 23.5 24.7 27.9 27.1 22.4 25.6 Source: SEC Filings, Author's Estimates (In USD million unless otherwise specified) It needs to be mentioned here that despite the decline in equity book value, the capital adequacy ratios are still at comfortable levels. The tier I ratio stood at 13.9% at the end of June 2022, as opposed to the minimum regulatory requirement of 8.5%. Therefore, the book value drop does not pose any risk to dividend payments. Margin is Only Moderately Rate Sensitive Variable-rate loans comprised around 53% of the loan portfolio at the end of December 2021, as mentioned in the earnings presentation. Therefore, the average portfolio yield will benefit to a moderate extent from a hike in interest rates. Within the securities portfolio, the management expects maturities and pay downs of $2.2 billion over the next twelve months. To put this number in perspective, $2.2 billion is 16% of total securities. This part of the securities portfolio will further enable the average yield to respond to higher interest rates. The management’s simulation model for rate sensitivity given in the 10-Q filing also shows that the net interest margin is only moderately sensitive to rate changes. A 200-basis points hike in interest rates could boost the net interest income by 4.01% over twelve months, assuming a static balance sheet. 2Q 2022 10-Q Filing Considering these factors, I'm expecting the margin to expand by 20 basis points in the second half of 2022 before plateauing through the end of 2023. Compared to my last report, I've tweaked upwards my margin estimate because my interest rate outlook is more hawkish than before. Excessive Coverage to Keep Further Provisioning Below Normal Last year, Commerce Bancshares reported a large provision reversal as the economy recovered quicker than expected from the pandemic. As the recovery is complete, further reversals are highly unlikely. Nevertheless, the provisioning expense, net of reversals, will most probably remain below normal through the end of 2023 because of heightened reserve levels. The allowances rose to 17.4 times the non-accruing loans at the end of June 2022 from 15.4 times of non-accruing loans at the end of June 2021. This allowance level is quite high relative to peers. 2Q 2022 Earnings Presentation Due to the excessively high coverage, I believe Commerce Bancshares can easily ride out a short recession without further bolstering its reserves. Therefore, I believe provisioning will likely remain below normal for the remainder of 2022 and full-year 2023. I'm expecting a net provision expense (annualized) of point 0.16% of total loans for the second half of 2022 and 0.17% of total loans for 2023. In comparison, the net provision expense averaged 0.28% of total loans in the last five years. Expecting Earnings to Dip by 8% The anticipated loan additions and moderate margin expansion will support earnings this year. On the other hand, higher provision expenses, net of reversals, will drag earnings. Moreover, the noninterest income will likely decline this year as last year’s one-off income, especially the gain on the sale of land, will not recur. Overall, I'm expecting Commerce Bancshares to report earnings of $3.97 per share for 2022, down 8% year-over-year. For 2023, I'm expecting earnings to grow by 7% year-over-year to $4.26 per share. The following table shows my income statement estimates. FY18 FY19 FY20 FY21 FY22E FY23E Income Statement Net interest income 824 821 830 835 929 1,002 Provision for loan losses 43 50 137 (66) 11 28 Non-interest income 501 525 506 560 552 578 Non-interest expense 738 767 768 806 853 882 Net income - Common Sh. 425 412 339 526 476 510 EPS - Diluted ($) 3.78 3.58 2.91 4.31 3.97 4.26 Source: SEC Filings, Author's Estimates (In USD million unless otherwise specified) In my last report on Commerce Bancshares, I estimated earnings of $3.82 per share for 2022. I've revised upwards my earnings estimate because I've tweaked upwards both my loan growth and margin estimates.

Aug 11

Commerce Bancshares (NASDAQ:CBSH) Is Paying Out A Dividend Of $0.265

Commerce Bancshares, Inc. ( NASDAQ:CBSH ) will pay a dividend of $0.265 on the 22nd of September. This payment means...

Aug 05

Commerce Bancshares declares $0.265 dividend

Commerce Bancshares (NASDAQ:CBSH) declares $0.265/share quarterly dividend, in line with previous. Forward yield 1.49% Payable Sept. 22; for shareholders of record Sept. 7; ex-div Sept. 6. See CBSH Dividend Scorecard, Yield Chart, & Dividend Growth.

Shareholder Returns

	CBSH	US Banks	US Market
7D	3.4%	6.7%	4.5%
1Y	11.3%	-8.3%	-8.9%

Return vs Industry: CBSH exceeded the US Banks industry which returned -10.2% over the past year.

Return vs Market: CBSH exceeded the US Market which returned -9.6% over the past year.

Price Volatility

Is CBSH's price volatile compared to industry and market?
CBSH volatility
CBSH Average Weekly Movement	2.7%
Banks Industry Average Movement	3.7%
Market Average Movement	7.6%
10% most volatile stocks in US Market	16.8%
10% least volatile stocks in US Market	3.1%

Stable Share Price: CBSH is less volatile than 75% of US stocks over the past 3 months, typically moving +/- 3% a week.

Volatility Over Time: CBSH's weekly volatility (3%) has been stable over the past year.

About the Company

Founded	Employees	CEO	Website
1865	4,579	John Kemper	https://www.commercebank.com

Commerce Bancshares, Inc. operates as the bank holding company for Commerce Bank that provides retail, mortgage banking, corporate, investment, trust, and asset management products and services to individuals and businesses in the United States. It operates through three segments: Consumer, Commercial, and Wealth. The Consumer segment offers various banking products and services, including consumer deposits; consumer loans, such as automobile, motorcycle, marine, tractor/trailer, recreational vehicle, fixed rate and revolving home equity, and other consumer loans; patient health care financing; real estate loans; indirect and other consumer financing; personal mortgage banking; consumer installment lending; and consumer debit and credit bank cards.

Commerce Bancshares Fundamentals Summary

How do Commerce Bancshares's earnings and revenue compare to its market cap?
CBSH fundamental statistics
Market Cap	US$8.85b
Earnings (TTM)	US$467.13m
Revenue (TTM)	US$1.45b

18.9x

P/E Ratio

3.3x

P/B Ratio

Is CBSH overvalued?

See Fair Value and valuation analysis

Earnings & Revenue

Key profitability statistics from the latest earnings report
CBSH income statement (TTM)
Revenue	US$1.45b
Cost of Revenue	US$0
Gross Profit	US$1.45b
Other Expenses	US$981.84m
Earnings	US$467.13m

Last Reported Earnings

Jun 30, 2022

Next Earnings Date

n/a

Earnings per share (EPS)	3.90
Gross Margin	100.00%
Net Profit Margin	32.24%
Debt/Equity Ratio	84.8%

How did CBSH perform over the long term?

See historical performance and comparison

Dividends

1.4%

Current Dividend Yield

27%

Payout Ratio

Does CBSH pay a reliable dividends?

See CBSH dividend history and benchmarks

When do you need to buy CBSH by to receive an upcoming dividend?
Commerce Bancshares dividend dates
Ex Dividend Date	Sep 06 2022
Dividend Pay Date	Sep 22 2022
Days until Ex dividend	20 days
Days until Dividend pay date	36 days

Does CBSH pay a reliable dividends?

See CBSH dividend history and benchmarks

We’ve recently updated our valuation analysis.

Valuation

Is CBSH undervalued compared to its fair value, analyst forecasts and its price relative to the market?

Valuation Score

2/6

Valuation Score 2/6

Price-To-Earnings vs Peers
Price-To-Earnings vs Industry
Price-To-Earnings vs Fair Ratio
Below Fair Value
Significantly Below Fair Value
Analyst Forecast

Key Valuation Metric

Which metric is best to use when looking at relative valuation for CBSH?

Other financial metrics that can be useful for relative valuation.

The above table shows the n/a ratio for CBSH. This is calculated by dividing CBSH's market cap by their current preferred multiple.
What is CBSH's n/a Ratio?
n/a Ratio	0x
n/a	n/a
Market Cap	US$8.85b

CBSH key valuation metrics and ratios. From Price to Earnings, Price to Sales and Price to Book to Price to Earnings Growth Ratio, Enterprise Value and EBITDA.
Key Statistics
Enterprise Value/Revenue	n/a
Enterprise Value/EBITDA	n/a
PEG Ratio	3.9x

Price to Earnings Ratio vs Peers

How does CBSH's PE Ratio compare to its peers?

CBSH PE Ratio vs Peers

The above table shows the PE ratio for CBSH vs its peers. Here we also display the market cap and forecasted growth for additional consideration.
Company	PE	Estimated Growth	Market Cap
Peer Average	17.1x
WBS Webster Financial	24.6x	44.6%	US$8.8b
ZION Zions Bancorporation National Association	10.7x	4.2%	US$8.9b
CFR Cullen/Frost Bankers	21.5x	11.0%	US$9.0b
EWBC East West Bancorp	11.6x	13.3%	US$10.9b
CBSH Commerce Bancshares	18.9x	4.9%	US$8.8b

Price-To-Earnings vs Peers: CBSH is expensive based on its Price-To-Earnings Ratio (18.9x) compared to the peer average (17.1x).

Price to Earnings Ratio vs Industry

How does CBSH's PE Ratio compare vs other companies in the US Banks Industry?

Price-To-Earnings vs Industry: CBSH is expensive based on its Price-To-Earnings Ratio (18.9x) compared to the US Banks industry average (10.1x)

Price to Earnings Ratio vs Fair Ratio

What is CBSH's PE Ratio compared to its Fair PE Ratio? This is the expected PE Ratio taking into account the company's forecast earnings growth, profit margins and other risk factors.

CBSH PE Ratio vs Fair Ratio.
Fair Ratio
Current PE Ratio	18.9x
Fair PE Ratio	13.4x

Price-To-Earnings vs Fair Ratio: CBSH is expensive based on its Price-To-Earnings Ratio (18.9x) compared to the estimated Fair Price-To-Earnings Ratio (13.4x).

Share Price vs Fair Value

What is the Fair Price of CBSH when looking at its future cash flows? For this estimate we use a Discounted Cash Flow model.

Below Fair Value: CBSH ($73.82) is trading below our estimate of fair value ($110.28)

Significantly Below Fair Value: CBSH is trading below fair value by more than 20%.

Analyst Price Targets

What is the analyst 12-month forecast and do we have any statistical confidence in the consensus price target?

Analyst Forecast: Target price is lower than the current share price.

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Future Growth

How is Commerce Bancshares forecast to perform in the next 1 to 3 years based on estimates from 6 analysts?

Future Growth Score

1/6

Future Growth Score 1/6

Earnings vs Savings Rate
Earnings vs Market
High Growth Earnings
Revenue vs Market
High Growth Revenue
Future ROE

4.9%

Forecasted annual earnings growth

Earnings and Revenue Growth Forecasts

Analyst Future Growth Forecasts

Earnings vs Savings Rate: CBSH's forecast earnings growth (4.9% per year) is above the savings rate (1.9%).

Earnings vs Market: CBSH's earnings (4.9% per year) are forecast to grow slower than the US market (14.5% per year).

High Growth Earnings: CBSH's earnings are forecast to grow, but not significantly.

Revenue vs Market: CBSH's revenue (6% per year) is forecast to grow slower than the US market (7.9% per year).

High Growth Revenue: CBSH's revenue (6% per year) is forecast to grow slower than 20% per year.

Earnings per Share Growth Forecasts

Future Return on Equity

Future ROE: CBSH's Return on Equity is forecast to be low in 3 years time (17.5%).

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Past Performance

How has Commerce Bancshares performed over the past 5 years?

Past Performance Score

2/6

Past Performance Score 2/6

Quality Earnings
Growing Profit Margin
Earnings Trend
Accelerating Growth
Earnings vs Industry
High ROE

9.6%

Historical annual earnings growth

Earnings and Revenue History

Quality Earnings: CBSH has high quality earnings.

Growing Profit Margin: CBSH's current net profit margins (32.2%) are lower than last year (36.5%).

Past Earnings Growth Analysis

Earnings Trend: CBSH's earnings have grown by 9.6% per year over the past 5 years.

Accelerating Growth: CBSH's has had negative earnings growth over the past year, so it can't be compared to its 5-year average.

Earnings vs Industry: CBSH had negative earnings growth (-14%) over the past year, making it difficult to compare to the Banks industry average (8.8%).

Return on Equity

High ROE: CBSH's Return on Equity (18%) is considered low.

Discover strong past performing companies

Financial Health

How is Commerce Bancshares's financial position? (This company is analysed differently as a bank or financial institution)

Financial Health Score

6/6

Financial Health Score 6/6

Asset Level
Allowance for Bad Loans
Low Risk Liabilities
Loan Level
Low Risk Deposits
Level of Bad Loans

Financial Position Analysis

Debt to Equity History and Analysis

Balance Sheet

Financial Institutions Analysis

Asset Level: CBSH's Assets to Equity ratio (12.5x) is moderate.

Allowance for Bad Loans: CBSH has a sufficient allowance for bad loans (1744%).

Low Risk Liabilities: 92% of CBSH's liabilities are made up of primarily low risk sources of funding.

Loan Level: CBSH has an appropriate level of Loans to Assets ratio (47%).

Low Risk Deposits: CBSH's Loans to Deposits ratio (55%) is appropriate.

Level of Bad Loans: CBSH has an appropriate level of bad loans (0.1%).

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Dividend

What is Commerce Bancshares's current dividend yield, its reliability and sustainability?

Dividend Score

4/6

Dividend Score 4/6

Notable Dividend
High Dividend
Stable Dividend
Growing Dividend
Earnings Coverage
Future Dividend Coverage

1.44%

Current Dividend Yield

Upcoming Dividend Payment

Dividend Yield vs Market

Notable Dividend: CBSH's dividend (1.44%) isn’t notable compared to the bottom 25% of dividend payers in the US market (1.47%).

High Dividend: CBSH's dividend (1.44%) is low compared to the top 25% of dividend payers in the US market (3.96%).

Stability and Growth of Payments

Stable Dividend: CBSH's dividends per share have been stable in the past 10 years.

Growing Dividend: CBSH's dividend payments have increased over the past 10 years.

Current Payout to Shareholders

Earnings Coverage: With its reasonably low payout ratio (26.6%), CBSH's dividend payments are well covered by earnings.

Future Payout to Shareholders

Future Dividend Coverage: CBSH's dividends in 3 years are forecast to be well covered by earnings (25.3% payout ratio).

Discover strong dividend paying companies

Management

How experienced are the management team and are they aligned to shareholders interests?

7.3yrs

Average management tenure

CEO

John Kemper (44 yo)

9.5yrs

Tenure

US$4,842,307

Compensation

Mr. John W. Kemper has been Chairman and Chief Executive Officer of Commerce Bank since August 2018 and has been Chief Executive Officer of Commerce Bancshares, Inc. since August 01, 2018. He was the Presi...

CEO Compensation Analysis

Compensation vs Market: John's total compensation ($USD4.84M) is below average for companies of similar size in the US market ($USD8.11M).

Compensation vs Earnings: John's compensation has increased by more than 20% whilst company earnings have fallen more than 20% in the past year.

Leadership Team

Experienced Management: CBSH's management team is seasoned and experienced (7.3 years average tenure).

Board Members

Experienced Board: CBSH's board of directors are seasoned and experienced ( 12.3 years average tenure).

Ownership

Who are the major shareholders and have insiders been buying or selling?

Insider Trading Volume

Insider Buying: CBSH insiders have bought more shares than they have sold in the past 3 months.

Recent Insider Transactions

Ownership Breakdown

Dilution of Shares: Shareholders have not been meaningfully diluted in the past year.

Data	Last Updated (UTC time)
Company Analysis	2022/08/16 00:00
End of Day Share Price	2022/08/16 00:00
Earnings	2022/06/30
Annual Earnings	2021/12/31