Street Batters Financials; Commerce of K.C. Drops

Street Batters Financials; Commerce of K.C. Drops Shares of Commerce Bancshares lost 5.49% Friday, one day after the Kansas City banking company reported solid fourth-quarter earnings.

It was a bloody session as a whole for financials, which along with the broader market reacted negatively to fresh economic data. The American Banker index of the top 50 banks was down 2.39%, its index of 225 banks declined 2.3% %, as the market digested two economic reports. Analysts who cover Commerce said they were not surprised by Friday’s drop, given its 12.9% increase in December.

David B. Hilder at Morgan Stanley Dean Witter & Co. downgraded $11.1 billion-asset Commerce to “neutral” from “outperform” on the basis of Friday’s valuation. Timothy Willi of A.G. Edwards & Sons in St. Louis and Joseph Roberto of Keefe, Bruyette & Woods reiterated their lukewarm “maintain” and “market perform” ratings, respectively.

In a research note Friday, Mr. Hilder said that though he is raising earnings estimates for 2001 and 2002 because of Thursday’s solid results, he still has reservations about the stock’s performance. “There is not enough potential upside to our new 12-month fair value target of $45 to maintain an ‘outperform’ rating.”

Commerce reported on Thursday that 2000 per-share earnings were $2.76, up 12%. Analysts said they were satisfied with the company’s loan growth of 5% year-over-year and fee-based revenues, which now account for 34% of revenues.

Mr. Hilder said his 12-month price target is $45, based on a multiple of 13-times his estimate of earnings of $3.45 per share in 2002. He said he expects Commerce to earn $3.05 a share this year.

Mr. Willi said he was less impressed with the company’s stagnant fourth-quarter net interest income and said the bank needs to put more emphasis on deposit growth, which will inevitably put additional pressure on the margins. He said his rating reflects his generally cautious view on banking stocks and that he would consider upgrading Commerce if its stock price hits the mid-$30 range.

Shares of Commerce were down $2.1875 on Friday to $37.6875.

Elsewhere, Robert S. Patten of UBS Warburg initiated coverage for Centura Bank Inc. with a “buy” rating.

Mr. Patten said the stock had been under pressure for some time because of concerns over credit quality and the integration of Triangle Bancorp, which Centura Banks took over early last year.

Mr. Patten said that, after examining the company for several quarters, he feels comfortable enough to include Centura in his coverage.

“The old Centura is back,” he said, citing strong fee revenue, a rebound in mortgage banking, and the return of Centura’s good credit quality. Given those things, the bank deserves a higher multiple, he said.

Centura rose 35.5 cents, or 0.85%, to $44.5625.

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