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Huntington (HBAN) Continues to Grow Inorganically, Costs Rise
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Performance of banks in first-quarter 2019 was impressive. Rise in lending activities, controlled expenses, decent fee income performance and higher rates boosted investors’ confidence in banking stocks. Therefore, some of these stocks can be profitable additions to your portfolio, supported by robust fundamentals and encouraging long-term prospects.
Huntington Bancshares Incorporated (HBAN - Free Report) is one such stock. Rising fee income, improving credit quality, rising margins and strategic investments through mergers and acquisitions (M&A) are the major driving factors. However, significant exposure to commercial loans, along with rising expenses, is on the downside.
Diversified fee-income base, strategic acquisitions and rising loans and deposits balance aided the company to rally 12.8% year to date compared with 8.6% growth recorded by the industry.
The company’s earnings estimates for the current year have remained unchanged, in the last seven days. It currently carries a Zacks Rank #3 (Hold).
Huntington has witnessed continued growth in deposit balance over the last few years. Also, loans improved due to its commendable performance in commercial and consumer portfolio. Management predicts average loans and leases, along with average deposits, to increase in the 4-6% band in 2019. 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 2016, the company completed its acquisition of FirstMerit Corporation, which resulted in a larger market presence and more diversified loan portfolio, along with bigger core deposit funding base. Therefore, we believe such efforts will help the company gain significant market share and thereby, enhance its profitability over the long run.
Though Huntington’s non-interest expenses witnessed a CAGR of 8.9% over the last five years (ended 2018), with the trend continuing in the first three months of 2019. The company is making planned investments in digital, data and technology enhancements that will bolster its existing capabilities and infrastructure. Therefore, a persistent uptrend in expenses is expected, which is likely to limit the company’s profitability and operational efficiency. Notably, management expects expenses to rise 2-4% this year.
Also, Huntington’s loan portfolio consists of nearly 50% of commercial loans. Such high exposure to commercial loans depicts lack of diversification, which can be risky for the company amid challenging economy and competitive markets.
Stocks to Consider
First Business Financial Services, Inc. (FBIZ - Free Report) has been witnessing upward estimate revisions, for the past 60 days. Moreover, this Zacks #1 (Strong Buy) Ranked stock has rallied more than 20%, year to date. You can see the complete list of today’s Zacks #1 Rank stocks here.
Franklin Resources, Inc. (BEN - Free Report) has been witnessing upward estimate revisions, for the past 60 days. Also, the company’s shares have gained nearly 13.7% year to date. At present, it sports a Zacks Rank of 1.
1st Source Corporation (SRCE - Free Report) has been witnessing upward estimate revisions for the past 60 days. Additionally, the stock has jumped around 15.3% year to date. It currently carries a Zacks Rank #2.
Today's Best Stocks from Zacks
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Huntington (HBAN) Continues to Grow Inorganically, Costs Rise
Performance of banks in first-quarter 2019 was impressive. Rise in lending activities, controlled expenses, decent fee income performance and higher rates boosted investors’ confidence in banking stocks. Therefore, some of these stocks can be profitable additions to your portfolio, supported by robust fundamentals and encouraging long-term prospects.
Huntington Bancshares Incorporated (HBAN - Free Report) is one such stock. Rising fee income, improving credit quality, rising margins and strategic investments through mergers and acquisitions (M&A) are the major driving factors. However, significant exposure to commercial loans, along with rising expenses, is on the downside.
Diversified fee-income base, strategic acquisitions and rising loans and deposits balance aided the company to rally 12.8% year to date compared with 8.6% growth recorded by the industry.
The company’s earnings estimates for the current year have remained unchanged, in the last seven days. It currently carries a Zacks Rank #3 (Hold).
Huntington has witnessed continued growth in deposit balance over the last few years. Also, loans improved due to its commendable performance in commercial and consumer portfolio. Management predicts average loans and leases, along with average deposits, to increase in the 4-6% band in 2019. 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 2016, the company completed its acquisition of FirstMerit Corporation, which resulted in a larger market presence and more diversified loan portfolio, along with bigger core deposit funding base. Therefore, we believe such efforts will help the company gain significant market share and thereby, enhance its profitability over the long run.
Though Huntington’s non-interest expenses witnessed a CAGR of 8.9% over the last five years (ended 2018), with the trend continuing in the first three months of 2019. The company is making planned investments in digital, data and technology enhancements that will bolster its existing capabilities and infrastructure. Therefore, a persistent uptrend in expenses is expected, which is likely to limit the company’s profitability and operational efficiency. Notably, management expects expenses to rise 2-4% this year.
Also, Huntington’s loan portfolio consists of nearly 50% of commercial loans. Such high exposure to commercial loans depicts lack of diversification, which can be risky for the company amid challenging economy and competitive markets.
Stocks to Consider
First Business Financial Services, Inc. (FBIZ - Free Report) has been witnessing upward estimate revisions, for the past 60 days. Moreover, this Zacks #1 (Strong Buy) Ranked stock has rallied more than 20%, year to date. You can see the complete list of today’s Zacks #1 Rank stocks here.
Franklin Resources, Inc. (BEN - Free Report) has been witnessing upward estimate revisions, for the past 60 days. Also, the company’s shares have gained nearly 13.7% year to date. At present, it sports a Zacks Rank of 1.
1st Source Corporation (SRCE - Free Report) has been witnessing upward estimate revisions for the past 60 days. Additionally, the stock has jumped around 15.3% year to date. It currently carries a Zacks Rank #2.
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2018, while the S&P 500 gained +15.8%, five of our screens returned +38.0%, +61.3%, +61.6%, +68.1%, and +98.3%.
This outperformance has not just been a recent phenomenon. From 2000 – 2018, while the S&P averaged +4.8% per year, our top strategies averaged up to +56.2% per year.
See their latest picks free >>