On Jan 5, we issued an updated research report on Huntington Bancshares HBAN. The company’s strategic initiatives including expansion moves are likely to bolster revenue growth. Also, a robust liquidity position along with growth in loans and deposits is expected to drive its long-term growth.
However, bottom-line growth remains affected due to consistently increasing costs. Further, significant exposure to commercial loans may pose a threat for the company.
Huntington is well-positioned to expand via acquisitions. In August 2016, the company completed the acquisition of Ohio-based FirstMerit Corporation. Prior to that, in April 2015, Huntington completed the acquisition of Australia-based Macquarie Equipment Finance, Inc. It also announced the opening of additional 43 in-store Meijer branches in Michigan. In 2014, the company acquired Camco Financial and 24 branches in Michigan from the Bank of America Corp. We believe that such efforts will help the company gain significant market share and thereby enhance its profitability in the long run.
Moreover, the company is focused on acquiring the industry's best deposit franchise. Huntington’s total average deposits recorded a 3-year CAGR of 14.0% in 2016. Further, driven by strong performance in the commercial and consumer portfolio, total average loan balance recorded a 3-year CAGR of 12.5% in 2016. The increasing trend in average deposits and loan balances continued in the first three quarters of 2017 as well. We believe that both loan and deposit balances are poised to grow in an improving economy.
Driven by such initiatives, analysts are optimistic about the prospects of the company. The stock has seen the Zacks Consensus Estimate for 2018 earnings being increased 2.8% over the last 30 days. Also, this Zacks Rank #3 (Hold) stock has gained 10.1% in 2017 compared with 4.6% rise of its industry.
On the flip side, Huntington’s consistently increasing cost base has been hurting the bottom-line growth to some extent. Following a volatile trend in 2013, non-interest expenses rose 7%, 6% and 24% during 2014, 2015 and 2016, respectively. The uptrend continued in first nine months of 2017, primarily driven by the FirstMerit acquisition. Notably, in July 2014, Huntington initiated organizational actions in order to trim down non-interest expense and enhance productivity. However, a continued uptrend in expenses is likely to limit profitability and operational efficiency of the company.
Also, majority of Huntington’s loan portfolio, nearly 51% as of Sep 30, 2017, comprises total commercial loans (commercial and business lending as well as commercial real estate lending). Such high exposure to commercial loans depicts lack of diversification which can be risky for the company amid challenging economy and competitive markets.
Other Stocks to Consider
Some other top-ranked stocks from the same space are Enterprise Financial Services Corp EFSC, Civista Bancshares CIVB and MainSource Financial Group MSFG, each carrying a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Enterprise Financial witnessed an upward earnings estimate revision of 4% for 2018 in the last 30 days. Its share price has increased 12.2% in the past 12 months.
Civista Bancshares’ Zacks Consensus Estimate has been revised 6.6% upward for 2018 earnings in the last 30 days. The company’s share price has increased 9.1% in the past 12 months.
MainSource Financial witnessed upward earnings estimate revision of 12.5% for 2018, in the last 30 days. Its share price has increased 12.3% in the past 12 months.
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