On Nov 6, 2014, we issued an updated research report on Huntington Bancshares Inc. (HBAN). Shares of this Midwest bank have gained 16% in a year’s time. We believe this growth story has been aided by a number of factors including the company’s continued focus on sustaining organic growth, striving for expanding market share, a strong capital position and steady capital deployment activities.
Driven by a strong liquidity position, Huntington has been able to expand via a couple of mergers and acquisitions over the past couple of years, the latest being the acquisition of Camco Financial this year. Further, in September the company strengthened its Michigan branch network by acquiring 24 branches in Michigan from the Bank of America Corp. (BAC).
We also remain encouraged by the company’s focus on strategic initiatives. While it is expanding on one hand, at same time in order to optimize its distribution network, the company aims to close 26 branches by the end of 2014. Further, the company significantly completed the organizational actions it initiated in Jul 2014. These actions are aimed to trim down non-interest expense and enhance productivity.
Adding to the positives, the recent 20% dividend hike to 6 cents per share further boosts investors’ confidence on the stock. The dividend will be paid on Jan 2, 2015, to shareholders of record Dec 19, 2014.
However, we remain cautious, given management’s downbeat outlook for net interest margin (NIM) and expenses. NIM is expected to remain somewhat compressed in the fourth quarter due to pressure on asset yields. Hence this may offset the benefits of an expected modest growth in net interest income.
Excluding one-time item, expenses are expected to remain at the third-quarter-levels in the fourth quarter. However, for 2015, the company expects non-interest expense to exhibit a modest increase in the range of 2% to 4% higher than 2014 after adjusting for significant items on account of continued investments in the franchise.
Analysts’ mixed stance on the stock was reflected in the estimate revisions over the past 30 days. For 2014, the Zacks Consensus Estimate dipped 1.4% to 73 cents per share for 2014 while it remained stable at 79 cents per share for 2015.
Huntington currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in this space include Enterprise Financial Services Corp. (EFSC) and Old Second Bancorp Inc. (OSBC). Both Enterprise Financial and Old Second Bancorp sport a Zacks Rank #1 (Strong Buy).
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