Huntington (HBAN) On Growth Track: Should You Hold?

On Aug 11, 2015, we issued an updated research report on Huntington Bancshares Inc. (NASDAQ:HBAN) . We deem this Midwest bank’s expansion story has been aided by a number of factors including the company’s continual focus on sustaining organic growth, striving to expand its market share, a solid capital position along with 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 a strategic deal to acquire Ohio-based FirstMerit Corporation. Prior to that in Apr 2015, the company completed the acquisition of Australia-based Macquarie Equipment Finance, Inc.

Huntington also announced the opening of additional 43 in-store Meijer branches in Michigan last year. In 2014, the company bought Camco Financial and 24 branches in Michigan from the Bank of America Corp (NYSE:BAC) .

We also remain encouraged by the company’s steady capital deployment measures. Following the Federal Reserve’s approval of its 2016 Capital Plan, the company is anticipated to increase quarterly dividend by14% starting in the fourth quarter of 2016. Moreover, the plan also includes the issuance of capital related to the pending acquisition of FirstMerit Corporation and continues the previously announced suspension of the company's share repurchase program.

Excluding significant items, net MSR activity, and the incremental effect of the pending First Merit acquisition, Huntington expects 4% to 6% revenue growth and positive operating leverage in 2016. However, pressure on NIM is likely to persist in the near term. Notably, based on expectation of no rise in interest rates during the year, NIM is projected to bottom out in the latter half of 2016, but stay above 3%.

However, we remain concerned about Huntington’s consistently increasing cost base. Following a volatile trend in 2013, non-interest expenses rose 7% and 6% during 2014 and 2015, respectively, with the trend continuing in first half of 2016. A continued uptrend in expenses is estimated to limit profitability and operational efficiency of the company.

Overall, credit quality is anticipated to remain at the current levels with some moderate volatility on a quarterly basis due to macroeconomic woes, volatility in commodities and currency market, along with the low level of problem assets and credit costs. NCOs are expected below the company’s long-term normalized range of 35–55 basis points.

For 2016 and 2017, the Zacks Consensus Estimate remained stable at 82 cents and 89 cents per share, over the last 7 days, respectively. Hence, Huntington currently carries a Zacks Rank #3 (Hold).

A couple of stocks in this space worth considering include Enterprise Financial Services Corp. (NASDAQ:EFSC) and First Midwest Bancorp Inc. (NASDAQ:FMBI) . Both stocks sport a Zacks Rank #1 (Strong Buy).

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