Leading regional bank Huntington Bancshares (HBAN) has been gaining momentum lately due to the Fed’s hawkish tilt. However, with shrinking profit margins and bleak earnings growth prospects, is HBAN an ideal investment now? Read on to find out.
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Huntington Bancshares Incorporated (HBAN) in Columbus, Ohio, is a diversified regional bank holding company with approximately $175 billion in assets. It operates through 1,100 branches in 12 states. However, the company has an ISS Governance QualityScore of 7, indicating relatively high governance risk.
Shares of HBAN have gained 10.9% in price over the past six months and slightly since the start of the year. Thanks to the Fed’s hawkish monetary policy statements of late, the stock has outperformed the broader market so far this year. Due to the potential for benchmark interest rates to rise, investors are betting that HBAN’s profit margins will improve in the coming quarters.
However, demand for small business loans, a key revenue source for HBAN, may decline in the near term, given rising borrowing costs and 40-year high inflation amid decline in consumer confidence levels.
Here’s what could shape HBAN’s performance in the near term:
Mixed finance
HBAN’s net interest income increased 37% year-over-year to $1.14 billion in its fourth fiscal quarter, ended December 31, 2021. Its non-interest income rose to $515 million, up 26% from the same period last year. However, its EPS fell 4% from the year-ago quarter to $0.26. And the company missed the FactSet by $0.30 EPS consensus estimate by 13.3%.
HBAN’s tangible book value per share was down 5% from its value a year ago at $8.06. And its ROE was 8.7%, reflecting a decline of 170 basis points. Additionally, its return on average assets declined 120 basis points year-over-year to 0.92%.
Lower profit margins than the industry
HBAN’s 21.71% 12-month net profit margin is 28.4% below the industry average of 30.31%. Its return on equity of 8.26% for 12 consecutive months compares to the industry average of 12.99%. Additionally, the company’s ROA of 0.74% is 44.7% lower than the industry average of 1.35%.
Additionally, HBAN’s 3.25% year-over-year capital expenditure/sales is 101.6% lower than the industry average of 1.61%.
POWR ratings reflect bleak outlook
HBAN has an overall D rating, which is equivalent to selling in our own POWR Rankings system. POWR ratings are calculated by considering 118 separate factors, with each factor weighted to an optimal degree.
HBAN has a D rating for sentiment and quality. Analysts expect HBAN’s EPS to decline 37.5% year over year in the first quarter of fiscal 2022 (ending March 2022) and at a rate of 2. 2% per year for the next five years. This justifies the Sentiment rating. Additionally, the lower profit margins than the industry justify the Quality rating.
Out of 41 shares of Midwest Regional Banks group, HBAN is finally classified.
Beyond what I said above, one can see the HBAN ratings for growth, stability, momentum and value here.
Conclusion
Despite being a top regional holding bank in the Midwest, HBAN’s declining profit margins are cause for concern. While analysts expect the company’s earnings to improve in the coming months, its results and profitability ratios are expected to remain under pressure. Additionally, with the COVID-19 omicron variant dampening consumer spending levels and with interest rates rising, small businesses may reduce their debt financing for some time until the economy recovers. stabilizes. In this context, we believe it is best to avoid HBAN now.
How does Huntington Bancshares Incorporated (HBAN) compare to its peers?
Although HBAN has a D rating in our proprietary rating system, it may be worth considering looking at its industry peers, Midland States Bancorp, Inc. (MSBI), First Financial Corporation Indiana (THFF) and Level One Bancorp, Inc. (LEVEL), which have a B (buy) rating.
HBAN shares were up $0.07 (+0.45%) in premarket trading on Thursday. Year-to-date, HBAN has gained 0.06%, versus a -8.75% rise in the benchmark S&P 500 over the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the dos and don’ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing stocks.
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