Is Huntington Bancshares a Bargain Here?

With shares of Huntington Bancshares Incorporated (NASDAQ:HBAN) trading at around $7.00, is HBAN an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

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Huntington Bancshares recently reported Q4 EPS of $0.19 as well as FY2012 EPS of $0.71. Q4 net income came in at $159.30 million, which is a 34 percent increase from the same quarter last year. FY2012 net income came in at $609 million, which is a 19 percent increase over last year. These positive results can be attributed to an increase in mortgage banking revenue, a rise in securities gains, an increase in the sale of loans, and more. There is more information in the Earnings section.

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While the situation looks good right now, there will be some challenges going forward. The biggest challenge will be increased expenses. In regards to net interest margin, it’s expected to rise slightly in 2013, but there might be pressure in that area as well.

Huntington Bancshares announced that it will maintain its quarterly dividend of 4 cents per share. Margins are good, cash flow is solid, and the Forward P/E is just 10.77. So far, everything looks good, but let’s take a look at some important numbers prior to forming an opinion.

E = Equity to Debt Ratio Is Normal

The debt-to-equity ratio for Huntington Bancshares isn’t spectacular, but it’s much stronger than the average debt-to-equity ratio for the industry. For example, Huntington Bancshares has a stronger debt-to-equity ratio than Fifth Third Bancorp (NASDAQ:FITB) and Northern Trust Corporation (NASDAQ:NTRS).  The balance sheet for Huntington Bancshares isn’t in positive territory, but it’s not in dangerous territory, either.

Debt-To-Equity

Cash

Long-Term Debt

HBAN

0.48

$955.21 Million

$1.50 Billion

FITB

1.04

$3.98 Billion

$8.13 Billion

NTRS

0.79

$29.55 Billion

$4.10 Billion

 

T = Technicals on the Stock Chart Are Strong

Huntington Bancshares has performed well over the past three years. Over that time frame, it has outperformed similar companies in the industry.

1 Month

Year-To-Date

1 Year

3 Year

HBAN

11.09%

9.70%

20.02%

72.34%

FITB

11.82%

7.17%

21.61%

50.93%

NTRS

2.83%

-0.16%

22.64%

4.71%

 

At $7.00, Huntington Bancshares is currently trading above all its averages.

50-Day SMA

6.32

100-Day SMA

6.54

200-Day SMA

6.46

 

E = Earnings Have Been Steady

Earnings have been improving on an annual basis since 2009. Revenue hasn’t been as consistent.

2008

2009

2010

2011

2012

Revenue ($)in billions

3.51

3.24

3.19

2.95

3.02

Diluted EPS ($)

-0.44

-6.14

0.19

0.59

0.71

 

When we look at last quarter on a YoY basis, we see an increase in earnings and revenue.

12/2011

3/2012

6/2012

9/2012

12/2012

Revenue ($)in millions

714.57

765.26

741.36

744.85

776.05

Diluted EPS ($)

0.13

0.17

0.17

0.19

0.19

 

T = Trends Might Support the Industry

There is an obvious trend taking place, which is regional banks outperforming big banks. This ties to fewer challenges to overcome that still stem from the financial crisis. Regional banks have been able to get back on track much faster. Trends in the Midwest have been especially good. However, the majority of the public still doesn’t trust the broader economic recovery. Therefore, there might be much volatility in 2013, which has the potential to affect revenues.

Conclusion

Huntington Bancshares is in the process of making an impressive comeback. The current valuation is appealing, margins are healthy, the balance sheet is in decent condition, cash flow is solid, and there is a 2.4 percent yield. There might be some challenges ahead, but even if that’s the case, it will take time for sustained bearish sentiment to return. For the time being, Huntington Bancshares is an OUTPERFORM.

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