We have reaffirmed our Neutral recommendation on Huntington Bancshares Incorporated (HBAN) based on its fundamentals and capital deployment activities in light of the current economic environment.
Third Quarter Result
Huntington’s earnings of 19 cents per share in the third quarter of 2012 included a state deferred tax valuation allowance benefit of 2 cents per share. Excluding that benefit, the results were in line with the Zacks Consensus Estimate of 17 cents.
The company experienced augmentation in mortgage banking revenue and in average earning assets, though the continued pressure on net interest margin partly offset that benefit. Moreover, expenses increased in the quarter.
Our Take
Huntington has a solid franchise in the Midwest and is focused on capitalizing on its growth opportunities. The company has made fundamental progress since January 2009 and reorganized its business model, implemented a strategic planning process, and strengthened its management team to drive expansion.
Cross-sell and product penetration initiatives throughout the company are expected to boost its top-line figures. Moreover, the Fidelity Bank acquisition and the in-store banking deal augur well going forward. Also, with robust capital levels, the company is well poised to return value to shareholders through share buybacks and dividends.
Yet, revenue headwinds are a concern for Huntington amidst a tepid economic recovery, low interest rate and a tough regulatory environment. The pressure on net interest margin is likely to continue due to the anticipated competitive pressures on loan pricing, as well as lower rate securities through reinvestment, and declining positive impacts from deposit repricing.
Further, with an expanding expense base, we remain somewhat skeptical about its ability to augment earnings in the quarters ahead. Hence, the risk-reward profile seems balanced for Huntington and we reaffirm our Neutral recommendation on the stock.
Further, Huntington shares maintain a Zacks #3 Rank, which translates into a short-term Hold recommendation. Its closest peers such as TCF Financial Corporation (TCB) and Commerce Bancshares Inc. (CBSH) also have a Zacks #3 Rank.
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