Active Trader Update
This column was originally published on RealMoney on July 11 at 11:00 a.m. EDT. It's being republished as a bonus for TheStreet.com readers. Commerce BancorpCBH shares dropped 7% last Wednesday, representing a loss of about $400 million in market value. This was in response to a Jesse Eisinger column in The Wall Street Journal that heaped negativity on the company. The drop in Commerce's stock, which currently trades around $32 a share, is good news for bargain hunters. My calculations indicate that Commerce will be worth more than double the current quote, or $67 a share, by 2008, and worth triple the current quote, or $100 a share, in four years. Investors interested in the upside opportunity in Commerce stock have to be able to see through the negativity in Eisinger's column. At a minimum, the bulk of the argument is misleading. I'll review where his conclusions go awry.
Growth
Eisinger first takes issue with Commerce's comparable-store deposit growth. According to disclosures made by Commerce, same-store deposit growth in the first quarter will be about 18%, and total first-quarter deposits will be up about 24%. The 24% total increase is derived from same-store deposit growth plus growth in deposits from new stores. The 18% same-store growth rate for the first quarter is down from an average same-store growth rate of 20.3% for 2005. Consider this comment from the Journal column: "The growth rate is falling ... the slowdown is just one sign that Commerce's vaunted business model is breaking down." To divine meaning from a slight decline off a high base is quite a stretch, particularly when it's based on just one quarter of data. To say that it is an indication that the "business model is breaking down" is nonsense.It's a stockpicker's sector in which underperformers are likely to be hammered.
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