Flat Curve Could Hamper Commerce in Short Term

Shares of New Jersey based Commerce Bancorp (CBH) have been strong lately, along with other bank stocks, as investors hope the Fed will stop hiking interest rates when the Fed Funds rate hits 4.5% early next year. However, after a run from $27-$28 to $33-$34, shares of CBH could see weakness in the short term.

Although the company’s long term growth prospects remain among the brightest in the industry, the flatness of the yield curve will make it difficult for CBH to beat, or even meet, Wall Street’s profit expectations in both the fourth quarter and early 2006.

Any guidance reduction in Commerce’s soon-to-be-released mi- quarter update will likely cause a 5 to 10 percent sell-off in the stock. At that point, long term investors can be more aggressive with their positions.

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2 Thoughts on “Flat Curve Could Hamper Commerce in Short Term

  1. NO DooDahs on December 8, 2005 at 2:25 PM said:

    10% off the top would make this more attractive. Did you see the short interest? Looks like they got knocked off during the spike to 33.50, only to climb back on this Wednesday. Whew! Down 3% on double average volume! I think they’re anticipating a profit warning, just as you are.

  2. Chad Brand on December 9, 2005 at 7:26 AM said:

    CBH indeed reduced guidance for Q4 2005 and Q1 2006 this morning in its 8K filing. Full year 2006 numbers look okay (only a few cents below consensus) as they company is taking steps to alleviate interest margin declines. They see net interest margin stabilizing beginning in Q1 2006. Their assumptions include 3 more 25-bp rate hikes, to Fed Funds of 4.75%.

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