UMB Financial Stock Touches 52-Week High: Is It Worth Investing?

Investors interested in stocks from the Banks - Midwest sector have probably already heard of Huntington Bancshares (HBAN) and Commerce Bancshares (CBSH). But which of these two stocks is more attractive to value investors? We'll need to take a closer look to find out.

There are plenty of strategies for discovering value stocks, but we have found that pairing a strong Zacks Rank with an impressive grade in the Value category of our Style Scores system produces the best returns. The Zacks Rank is a proven strategy that targets companies with positive earnings estimate revision trends, while our Style Scores work to grade companies based on specific traits.

Currently, both Huntington Bancshares and Commerce Bancshares are holding a Zacks Rank of # 2 (Buy). This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that these stocks have improving earnings outlooks. But this is just one factor that value investors are interested in.

Value investors analyze a variety of traditional, tried-and-true metrics to help find companies that they believe are undervalued at their current share price levels.

The Value category of the Style Scores system identifies undervalued companies by looking at a number of key metrics. These include the long-favored P/E ratio, P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that help us determine a company's fair value.

HBAN currently has a forward P/E ratio of 12.25, while CBSH has a forward P/E of 15.74. We also note that HBAN has a PEG ratio of 2.98. This figure is similar to the commonly-used P/E ratio, with the PEG ratio also factoring in a company's expected earnings growth rate. CBSH currently has a PEG ratio of 10.29.

Another notable valuation metric for HBAN is its P/B ratio of 1.24. The P/B is a method of comparing a stock's market value to its book value, which is defined as total assets minus total liabilities. By comparison, CBSH has a P/B of 2.55.

These are just a few of the metrics contributing to HBAN's Value grade of B and CBSH's Value grade of C.

Both HBAN and CBSH are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that HBAN is the superior value option right now.

Zacks Investment Research

A month has gone by since the last earnings report for UMB Financial . Shares have added about 0.4% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is UMB due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

UMB Financial Q2 Earnings Top Estimates

UMB Financial’s operating earnings per share of $2.16 beat the Zacks Consensus Estimate of $1.96. Also, the bottom line compared favorably with the $1.93 earned in the year-ago quarter.

Results benefited from higher NII and fee income. Rising loan and deposit balances were other positives. However, a rise in expenses and provisions acted as spoilsport.

The results included a reduction of $3.8 million related to the pre-tax FDIC special assessment expense. After considering these charges, the GAAP net income for UMB Financial was $101.3 million for the second quarter, up 19.3% year over year.

Quarterly Revenues & Costs Rise

Quarterly revenues were $390 million, up 7.2% year over year. Also, the top line beat the Zacks Consensus Estimate of $384.3 million.

NII on an FTE basis was $251.5 million, which increased 8.3% from the prior-year quarter. On an FTE basis, Net interest margin was 2.51%, up from 2.44% reported in the prior-year quarter.

Non-interest income was $144.9 million, up 5% year over year. The rise was primarily driven by an increase in almost all components of fee income, except for other income. These were partially offset by a decrease in other miscellaneous income and lower investment securities gains.

Non-interest expenses were $249.1 million, up 3.5% year over year. The rise was driven by higher legal and consulting expenses due to costs related to the acquisition of Heartland Financial USA, Inc. Also, a rise in processing fees due to increased software subscription costs and an uptick in bankcard expenses were some of the other major reasons behind the increase. These were partially offset by a decrease of $3.6 million in regulatory fees expense. The operating non-interest expense was $243.2 million.

The efficiency ratio increased to 63.37%, down from the prior-year quarter’s 65.59%. A decline in the efficiency ratio indicates an increase in profitability.

As of Jun 30, 2024, average loans and leases were $23.8 billion, up 1.9% sequentially. Also, average deposits increased 2.4% to $34.3 billion.

Credit Quality: Mixed Bag

The ratio of net charge-offs to average loans was 0.05% in the reported quarter while the company didn’t record any net charge-offs to average loans in the prior-year quarter.

Also, total non-accrual and restructured loans were $13.7 million, down 29% year over year.

The provision for credit losses was $14.1 million for the second quarter of 2024, up 8.1% from the prior-year quarter.

Capital Ratios Improve

As of Jun 30, 2024, the Tier 1 risk-based capital ratio was 11.14%, which rose from 10.65% as of Jun 30, 2023. The Tier 1 leverage ratio was 8.50%, which increased from 8.16% as of Jun 30, 2023. The total risk-based capital ratio was 13.08%, which grew from 12.59% in the year-ago quarter.

Profitability Ratios Improve

Return on average assets at the quarter’s end was 0.96%, which increased from the year-ago quarter’s 0.9%. Further, the operating return on average equity was 13.30%, up from 13.08% reported in the previous year’s quarter.

Outlook

Third-Quarter

Management expects, with the prospect of a Fed’s rate cut in September this year, net interest margin to be stable from second- quarter's reported figure of 2.51%.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month.

The consensus estimate has shifted 8.38% due to these changes.

VGM Scores

At this time, UMB has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise UMB has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

Zacks Investment Research

Commerce Bancshares, Inc. CBSH is well-positioned for growth, given the decent loan demand, high interest rates and its balance sheet repositioning strategy. Moreover, solid liquidity and non-interest income growth will further support its financials.

Over the past week, the Zacks Consensus Estimate for both 2024 and 2025 earnings has moved marginally upward to $3.94 and $3.89, respectively. CBSH currently sports a Zacks Rank #1 (Strong Buy).

Year to date, shares of Commerce Bancshares have gained 16.2%, outperforming the industry’s growth of 9.2%.

What Makes the Stock Worth Betting on

Earnings Growth: Commerce Bancshares witnessed earnings growth of 8.9% over the past three to five years. This was driven by the company’s organic growth strategy, solid customer relationships and strong risk management.

Our projections for earnings indicate a 4.8%, 1% and 6% rise in 2024, 2025 and 2026, respectively.

Revenue Strength: Driven by growth in loan demand and fee income, Commerce Bancshares’ total revenues witnessed a compound annual growth rate of 3.5% over the last five years (2018-2023). The trend continued in the first half of 2024 as well. Organic growth measures and a high-interest-rate scenario are likely to support top-line expansion, though rising funding costs will weigh on it to some extent.

Further, its balance sheet repositioning strategy is likely to boost net interest income through the sale of debt securities and reinvesting the proceeds at higher yields.

Our estimates for total revenues indicate 3.6%, 1.4% and 1.9% growth in 2024, 2025 and 2026, respectively.

Strong Balance Sheet: As of Jun 30, 2024, CBSH’s total cash and cash equivalents (consisting of cash and due from banks and interest-earning deposits with banks) were $2.5 billion. Total debt (comprising other liabilities and other borrowings) was $580.4 million. Also, the company maintains investment grade ratings of A- and a stable outlook from Standard & Poor’s. Hence, a solid liquidity position allows the company to address its near-term obligations.

Impressive Capital Distributions: Commerce Bancshares’ capital distribution activities are encouraging. The company has been paying a 5% stock dividend over the past 25 years, with the most recent one announced in December 2023. The company has been consistently paying quarterly cash dividends and has a share repurchase plan in place. As of Jun 30, 2024, roughly 4.3 million shares remained available under the authorization.

Given its decent earnings strength and strong liquidity position, the company is expected to continue efficient capital distributions, thus enhancing shareholder value.

Superior Return on Equity : CBSH’s trailing 12-month ROE reflects its superiority in terms of utilizing shareholders’ funds. The company’s ROE of 16.5% compares favorably with 10.9% of the industry.

Other Bank Stocks to Consider

Some other top-ranked stocks from the banking space worth a look are 1st Source Corporation SRCE and Farmers National Banc Corp. FMNB, each sporting a Zacks Rank #1 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for SRCE’s current-year earnings has moved 10.7% north over the past 30 days. Shares of the company have gained 17.1% in the past six months.

The Zacks Consensus Estimate for FMNB’s 2024 earnings has moved 3.8% upward in the past month. Over the past six months, shares of the company have risen 7.5%.

Zacks Investment Research