On Nov 8, 2013, we maintained our Neutral recommendation on
Huntington Bancshares Inc.
). The reaffirmation was based on better-than-expected earnings
and an improved credit quality. However, revenue headwinds are a
concern. Further, sluggish economic recovery and a tough
regulatory environment will likely limit the bank's earnings
growth in the quarters ahead.
Huntington's third-quarter 2013 earnings came in at 20 cents per
share, which beat the Zacks Consensus Estimate by 17.6%. Further,
results surpassed the prior-year quarter figure by a penny.
Huntington's performance was driven by lower-than-expected
provision for credit losses and decline in expenses. However,
lower revenues due to fall in net interest income and
non-interest income was the headwind.
Following third-quarter 2013 results, over the last 30 days, the
Zacks Consensus Estimate for 2013 advanced 2.9% to 70 cents as 12
of the 15 estimates moved north. For 2014, the Zacks Consensus
Estimate rose 2.9% to 72 cents since 7 of the 16 estimates moved
upward. Currently, Huntington carries a Zacks Rank #3 (Hold).
We are impressed by the turnaround made by Huntington since the
beginning of 2009. The company has reorganized its business
model, implemented a strategic planning process, and strengthened
its management team to drive growth.
These strategic changes, along with opportunistic
acquisitions, have helped Huntington to increase market share and
thereby enhance profitability in the long run. Additionally, the
company's favorable capital deployment activities make it a sound
asset for yield-seeking investors.
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However, we remain concerned about the pressure on Huntington's
net interest margin due to a persistent low interest rate
environment. The company's increased costs and its inability to
generate positive operating leverage are other challenges.
Additionally, regulatory upheavals and a sluggish macroeconomic
environment are expected to dent the company's profitability
Other Stocks to Consider
Better-placed Midwest banks include
First Interstate Bancsystem Inc.
German American Bancorp Inc.
). All these stocks carry a Zacks Rank #1 (Strong Buy).