Will the Recovery Continue for Huntington Bancshares?

With shares of Huntington Bancshares Incorporated (NASDAQ:HBAN) trading at around $7.21, 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

Huntington Bancshares is one of many comeback stories in the financial sector since the depths of the financial crisis. The Federal Reserve’s annual stress test has approved Huntington Bancshares for increased dividends and share buybacks. With capital plans approved, Huntington Bancshares will boost its dividend by $.05 per share in Q2 and buy back $227 million shares of common shares. The latter isn’t yet guaranteed, but it’s a strong possibility.

The company’s primary focus right now is to reinvest excess capital to organically grow the business. The company’s secondary goal is to return capital to shareholders via dividends and buybacks.

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Huntington Bancshares has seen increasing revenue, but costs continue to increase. Management has been successful in maneuvering enough to make sure EPS continue to grow. There have also been several insider purchases over the past three months, which indicates optimism from people who are much closer to the situation than anyone currently reading (or writing) this article.

The chart below compares current fundamentals for Huntington Bancshares, Fifth Third Bancorp (NASDAQ:FITB), and Comerica Incorporated (NYSE:CMA). Huntington Bancshares and Comerica are similar in size with market caps of $6.07 billion and $6.48 billion, respectively. Fifth Third has a market cap of $14.02 billion.

HBAN

FITB

CMA

Trailing   P/E

10.15

9.67

12.93

Forward   P/E

10.45

9.48

12.37

Profit   Margin

23.76%

24.78%

21.12%

ROE

11.44%

11.65%

7.55%

Operating   Cash Flow

$1.00 Billion

$2.56 Billion

$754.00 Million

Dividend   Yield

2.20%

2.70%

1.90%

Short   Position

2.00%

2.50%

6.60%

 

Let’s take a look at some more important numbers prior to forming an opinion on this stock…

E = Equity to Debt Ratio Is Strong     

The debt-to-equity ratio for Huntington Bancshares is much stronger than the industry average of 1.20. It’s also stronger than the debt-to-equity ratios for Fifth Third and Comerica. However, high debt-to-equity ratios are normal throughout the industry, and all three companies listed here have debt-to-equity ratios stronger than the industry average.

Debt-To-Equity

Cash

Long-Term Debt

HBAN

0.51

$1.90 Billion

$3.19 Billion

FITB

1.03

$3.12 Billion

$16.62 Billion

CMA

0.70

$5.04 Billion

$5.24 Billion

 

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T = Technicals on the Stock Chart Are Strong  

Huntington Bancshares has outperformed Fifth Third and Comerica over a three-year time frame, but these stocks have traded places several times over the past three years. Huntington Bancshares currently yields 2.20 percent, Fifth Third yields 2.70 percent, and Comerica yields 1.90 percent.

1 Month

Year-To-Date

1 Year

3 Year

HBAN

0.82%

13.28%

14.90%

37.48%

FITB

0.65%

6.08%

12.43%

21.56%

CMA

-0.45%

14.28%

11.03%

-7.58%

 

At $7.21, Huntington Bancshares is trading above all its averages.

50-Day   SMA

7.19

100-Day   SMA

6.77

200-Day   SMA

6.67

 

E = Earnings Have Been Improving                   

Revenue has been inconsistent, but earnings have improved on an annual basis.

2008

2009

2010

2011

2012

Revenue   ($)in   billions

3.51

3.24

3.19

2.95

3.03

Diluted   EPS ($)

-0.44

-6.14

0.19

0.59

0.71

 

When we look at the last quarter on a year-over-year basis, we see improvements in revenue and earnings.

12/2011

3/2012

6/2012

9/2012

12/2012

Revenue   ($)in   millions

714.57

765.26

741.36

744.85

776.65

Diluted   EPS ($)

0.13

0.17

0.17

0.19

0.18

 

Now let’s take a look at the next page for the Trends and Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?

T = Trends Might Support the Industry

At the moment, credit has eased, and real estate is soaring in many areas. These trends have favored banks. However, it’s questionable whether or not these trends are sustainable. Loan growth has slowed, mortgage fees have lowered, and the economy is in flux.

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Conclusion

Huntington Bancshares was one of the hardest hit stocks throughout the broader market during the financial crisis of 2008/2009. The Fed’s stress test indicates that Huntington Bancshares would be capable of weathering a similar storm if one were to occur in the future. This has given some investors (not all investors) comfort.

The performance of this stock relates to market conditions more than any other factor. Year-to-date, the trend has been positive, but it’s still a somewhat risky play.

Huntington Bancshares is a WAIT AND SEE.

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