UPDATE: Morgan Stanley Upgrades Commerce Bancshares from UW to EW, Keeps $43.00 PT

In a report published Monday, Morgan Stanley analyst Ken Zerbe upgraded Commerce Bancshares, Inc. CBSH to Equal-weight from Underweight, keeping its $43.00 price target. According to the report, the downward pressure on NII has eased and following 689 bps underperformance in 2013, the valuation premium over peers has declined. A more balanced risk-reward and peer-average return for the stock is now seen by analysts. “When we downgraded CBSH in November 2012, our primary concern was that NIM compression and lack of earning asset growth would drive NII materially lower,” the report said. “Asset growth has been weak, but NIM has proven much more stable than we expected. From here, we see above-peer loan growth of 7.8% (ex. M&A) on continued commercial share gains and solid consumer growth, and easing NIM pressure (down just 5 bps in 2014, excluding the volatile TIPS income). Net interest income in 2014 should be mostly flat, an improvement from down 3.1% in 2013.” Some highlights from the report included: -”The CBSH shares lagged the group by 689 bps in 2013, despite upward revisions to our 2014 EPS on improving loan growth.” -Reducing 4Q13e EPS by $0.01 to $0.71 -”Auto loan demand is strong and CBSH has been retaining resi mortgages, which we expect will help drive above-peer loan growth of 7.8% (ex. M&A) in 2014.” Some risks to CBSH include a material deterioration in the Midwest economy, which could result in both slower loan growth and higher credit losses, and weaker growth in its commercial card fee income business, the report noted. CBSH closed Friday at $44.13.
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Posted In: Analyst ColorUpgradesAnalyst RatingsKen ZerbeMorgan Stanley
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