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 spread across 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 marginally year-to-date. Thanks to Fed's hawkish monetary policy statements of late, the stock has been outperforming the broader market so far this year. Due to the potential of increased benchmark interest rates, investors are betting HBAN’s profit margins will improve in the coming quarters.
However, the demand for small business loans, a key revenue source for HBAN, might decline in the near term, given rising borrowing costs and 40-year high inflation amid sinking consumer confidence levels.
Here is what could shape HBAN’s performance in the near term:
Mixed Financials
HBAN’s net interest income increased 37% year-over-year to $1.14 billion in its fiscal fourth quarter, ended Dec. 31, 2021. Its noninterest income came in at $515 million, up 26% from the same period last year. However, its EPS fell 4% from the prior-year quarter to $0.26. And the company missed the $0.30 FactSet consensus EPS estimate by 13.3%.
HBAN’s tangible book value per share has declined 5% from its year-ago value to $8.06. And its ROE stood at 8.7%, reflecting a 170 basis points decline. Also, its return on average assets declined by 120 basis points year-over-year to 0.92%.
Lower-Than-Industry Profit Margins
HBAN’s 21.71% trailing-12-month net income margin is 28.4% lower than the 30.31% industry average Its 8.26% trailing-12-month return on equity compares with the 12.99% industry average. In addition, the company’s 0.74% ROA is 44.7% lower than the 1.35% industry average.
Furthermore, HBAN’s 3.25% trailing-12-month Capex/Sales is 101.6% lower than the 1.61% industry average.
POWR Ratings Reflect Bleak Prospects
HBAN has an overall D rating, which equates to Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
HBAN has a D grade for Sentiment and Quality. Analysts expect HBAN’s EPS to decline 37.5% year-over-year in its fiscal 2022 first quarter (ending March 2022) and at a rate of 2.2% per annum over the next five years. This justifies the Sentiment grade. In addition, the company’s lower-than-industry profit margins justify the Quality grade.
Of 41 stocks in the Midwest Regional Banks group, HBAN is ranked at last.
Beyond what I have stated above, one can view HBAN ratings for Growth, Stability, Momentum, and Value here.
Bottom Line
Despite being a leading regional holding bank in the Midwest, HBAN’s declining profit margins are a cause for concern. While analysts expect the company’s revenues to improve in the coming months, its bottom line and profitability ratios are expected to remain under pressure. Moreover, with the COVID-19 omicron variant dampening consumer spending levels, and with rising interest rates, small businesses might scale back their debt funding for a while until the economy stabilizes. Given this backdrop, we think HBAN is best avoided now.
How Does Huntington Bancshares Incorporated (HBAN) Stack Up Against its Peers?
While HBAN has a D rating in our proprietary rating system, one might want to consider looking at its industry peers, Midland States Bancorp, Inc. (MSBI), First Financial Corporation Indiana (THFF), and Level One Bancorp, Inc. (LEVL), which have a B (Buy) rating.
HBAN shares rose $0.07 (+0.45%) in premarket trading Thursday. Year-to-date, HBAN has gained 0.06%, versus a -8.75% rise in the benchmark S&P 500 index during 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 do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.
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