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We have reaffirmed our Neutral recommendation on Huntington Bancshares Inc. ( HBAN - Analyst Report ) . Our decision is based on its fundamentals and the strategic initiatives to boost its business organically as well as through acquisitions and the recent in-store banking deal. The decision takes into consideration the current economic and regulatory environment as well.
After reporting in-line results in the prior quarter, Huntington Bancshares came up with better-than-expected results in the first quarter of 2012. The company reported earnings of 17 cents per share, surpassing the Zacks Consensus Estimate by 3 cents.
Results reflected a revenue increase, primarily driven by an expansion of non-interest income. Credit quality also continued to improve. However, an increase in expenses partly offset the positives.
Huntington has a solid franchise in the Midwest. The company is focused on capitalizing its growth opportunities and its strategic efforts are right on track. The business model has transformed into product-specific businesses from a geographical approach in order to better align itself.
Its cross-sell and product penetration initiatives are expected to boost top-line figures. Other strategic actions include deposit growth emphasis, loan/deposit pricing discipline, and de-risking of the balance sheet.
Moreover, in an effort to increase its presence in Michigan, Huntington announced in May that it has partnered with Meijer to offer branch offices in several Meijer stores. An in-store banking agreement for 10 years has been signed between Huntington and Meijer that will provide Huntington over 200 branches in Michigan. This reflects over 65% increase in branch offices and more than 500 job additions in the state.
The company has also acquired Fidelity Bank in a Federal Deposit Insurance Corporation (FDIC) assisted deal in the first quarter of 2012 to boost its footprint in Southeast Michigan. The transaction added over 18,000 Fidelity Bank customers to Huntington.
We believe that such efforts will help the company in gaining market share and thereby enhance its profitability in the long run. Notably, following a turnaround phase after the break out of the financial crisis, Huntington is now focused on capitalizing on growth opportunities. The share buyback authorization following the Fed’s approval inspires investors’ confidence in the stock.
Yet, a tepid economic recovery, low interest rate environment and regulatory issues will likely restrict any robust development in earnings in the upcoming quarters. Moreover, with a growing expense base, we remain somewhat skeptical about the company’s ability to grow its earnings substantially in the quarters ahead.
We believe that the risk-reward profile of Huntington is currently balanced and hence, we have reiterated our Neutral recommendation on its shares.
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