Morgan Stanley lifts Commerce Bancshares stock to Equalweight

On Monday, Morgan Stanley (NYSE:MS) analyst Manan Gosalla upgraded Commerce Bancshares (NASDAQ:CBSH) stock, shifting the rating from Underweight to Equalweight, despite lowering the price target to $58 from $66. The adjustment reflects a positive outlook on the bank’s position in a difficult economic climate. According to InvestingPro data, the stock has declined nearly 11% in the past week, with technical indicators suggesting oversold conditions.

Commerce Bancshares, known for its conservative banking approach, has been recognized by Morgan Stanley for its defensive qualities amid uncertainty in the banking sector. The firm’s strong capital levels, with a Common Equity Tier 1 (CET1) ratio of 16.7% as reported at the end of the fourth quarter of 2024, and its solid credit quality were highlighted as significant advantages. The bank’s commitment to shareholder returns is evident in its 55-year streak of maintaining dividend payments, with 11 consecutive years of dividend increases, as revealed by InvestingPro analysis.

Gosalla noted that Commerce Bancshares is poised for a consistent improvement in net interest margin (NIM) and net interest income (NII) throughout 2025. This is despite the broader industry grappling with sluggish loan growth. Morgan Stanley anticipates a 16 basis point enhancement in NIM, from 3.49% in the fourth quarter of 2024 to an estimated 3.65% in the same period of 2025.

The bank’s ability to reprice fixed-rate assets has been a key factor in its forecasted financial performance. Specifically, Commerce Bancshares is expected to benefit from approximately $1.6 billion in annual cash flows from its securities portfolio and nearly $990 million from fixed-rate loans.

The revised price target of $58, down from the previous $66, takes into account these strategic financial maneuvers that are anticipated to drive Commerce Bancshares’ growth in the coming year. Morgan Stanley’s reassessment suggests confidence in the bank’s capacity to navigate the current economic headwinds and capitalize on its strong fiscal management and credit quality. InvestingPro analysis indicates the stock is currently undervalued, with analyst targets ranging from $65.50 to $74.00, suggesting potential upside from current levels. Subscribers can access additional insights, including 8 more ProTips and comprehensive financial metrics.

In other recent news, Commerce Bancshares reported fourth-quarter earnings that surpassed analyst expectations, with earnings of $1.01 per share, exceeding the consensus estimate of $0.92. The company’s revenue also topped forecasts, reaching $422.08 million against expectations of $416.66 million. Net interest income increased to $266.6 million, while non-interest income accounted for 36.8% of the total revenue. The bank’s annual dividend was raised by 7%, continuing its long-standing tradition of dividend growth, with the new quarterly dividend set at $0.275 per share. Piper Sandler adjusted its price target for Commerce Bancshares to $72, citing strong profitability prospects, although it maintained a Neutral rating due to limited valuation growth opportunities. The bank also announced changes to its executive compensation, with new salary figures and bonuses for top executives set to take effect in 2025. These developments reflect Commerce Bancshares’ ongoing efforts to enhance shareholder value and maintain competitive compensation practices.

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