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Huntington Continues to Grow Inorganically, Costs Increase

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On Jun 8, we issued an updated research report on Huntington Bancshares Incorporated HBAN. The company continues to benefit from sound organic and inorganic growth strategies. However, mounting expenses and lack of diversification in loan portfolio remain key concerns.

With $104 billion in assets as of Mar 31, 2018, Huntington’s profitability is expected to benefit greatly from the softening of regulations on account of lower compliance costs. Also, its bottom line will get further support from lower tax rates and rising interest rates.

The company’s Zacks Consensus Estimate for current-year earnings has remained stable, over the last 30 days. As a result, it currently carries a Zacks Rank #3 (Hold).

Shares of Huntington have gained 20.5% in the past year, slightly underperforming the 21.5% growth for the industry.

Huntington has witnessed consistent growth in deposit balance over the last few years as it remains focused on achieving the best deposit franchise. Also, loans improved due to its commendable performance in commercial and consumer portfolio. Management predicts average loans and leases to increase in the 4-6% band in 2018 while average deposits are expected to be up 3-5%. We believe the rising tendency in these balances is likely to continue in the quarters ahead with support from improving economic conditions.

On the back of its strong liquidity position, Huntington continues to expand through acquisitions. In August 2016, it completed the buyout of Ohio-based FirstMerit Corporation. Management expects the deal to be accretive to earnings per share in 2018. We expect these initiatives to support its top-line growth and help it gain market share, going forward.

However, the company’s non-interest expenses saw a CAGR of 13% over the last four years (ended 2017), mostly due to acquisitions and compensation-related expenses. Such consistent rise in costs is likely to deter bottom-line growth.

Also, Huntington’s loan portfolio consists of nearly 51% of commercial loans. Such high exposure to commercial loans depicts lack of diversification, which can be risky for the company amid a challenging economy and competitive markets.

Stocks to Consider

Some better-ranked stocks in the financial space are Associated Banc-Corp ASB sporting Zacks Rank #1 (Strong Buy), Farmers National Banc Corp. FMNB  and First Merchants Corporation FRME, carrying a Zacks Rank #2 (Buy).You can see the complete list of today’s Zacks #1 Rank stocks here.  

Associated Banc-Corp’s earnings estimates were revised upward by 11.4% for the current year, in the last 60 days. Also, its share price has jumped 15.4%, over the past six months.

Farmers National’s current-year earnings estimates were revised 1.8% upward, over the last 60 days. Further, its shares have rallied 9.1%, in the past six months.

First Merchants has witnessed 3.7% upward earnings estimates revision for the current year, in the past 30 days. Moreover, its shares have gained 12.9% in the past six months.

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