Sterne Agee Raising Estimates On Commerce Bancshares

According to Sterne Agee, Commerce Bancshares CBSH estimates are raised to reflect solid margin and cost control. Sterne Agee reported that CBSH should post solid results going forward, but loan growth is needed for stronger EPS momentum to develop. “CBSH has posted progressively better results since EPS bottomed in 4Q08-1Q09, given strong margin management, a decline in provision expense, and tighter cost control in recent periods. We estimate “normalized” EPS of $2.97 in 1Q11 versus $3.08 in 4Q10 and $2.82 in 1Q10, assuming provision of 40 bp. Margin pressure still seems likely going forward given the re-pricing of $1.1 billion securities, but less so than we previously expected. With a cost of IBLs of 0.51% (-35 bp Y/Y; -6 bp LQ), CBSH is running out of rabbits to pull out of the earnings hat—beyond loan growth and provision. We are raising our 2011E EPS by $0.40 to $3.00 and our 2012E EPS to $3.25 (+$0.30) to reflect a higher margin, slightly lower provision expense, and bank card fees excluding potential changes to debit card fees. Our 2013E EPS is $3.70.” Commerce Bancshares closed yesterday at $41.14.