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Inorganic Moves Aid Huntington (HBAN) Amid Rising Costs
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Over the past few years, Huntington Bancshares Incorporated (HBAN - Free Report) has expanded its footprint and capabilities in a number of verticals through acquisitions. However, the rising cost base and high debt levels keep us apprehensive.
Recently, the company acquired Torana to enhance its digital capabilities and enterprise payment strategy. In March 2022, it inked an agreement to acquire Capstone Partners, an investment banking (IB) firm. The transaction is in sync with Huntington’s efforts to expand its capital markets business and is expected to close by the end of the second quarter. Thus, such inorganic efforts will help the company to gain significant market share and, thereby, enhance its profitability over the long run.
The merger with TCF Financial made HBAN a top 25 U.S. bank holding company in the United States. This scale has enabled the company to enjoy decent deposit and loan growth. Growth in commercial as well as mortgage, auto and RV/marine loans will improve the lending act. Given the encouraging signs of an improving economy and growth in lending pipelines, we believe that both loan and deposit balances will rise.
The company has been dynamically managing its balance sheet to increase asset sensitivity. It has been investing in shorter duration and high-coupon securities, which offer faster reinvestment as rates rise. Such efforts adequately position it for a potential rise in interest rates.
However, non-interest expenses saw an increasing trend over the last four years (ended 2021), with the rise continuing in first-quarter 2022. HBAN intends to invest in digital capabilities, marketing and hiring personnel to aid its revenue growth initiatives. These are likely to keep its expense base higher, impeding bottom-line growth.
As of Mar 31, 2022, the company held a long-term debt of $7.16 billion, higher than cash and due from banks of $1.71 billion. Also, its times interest earned of 8.8 declined sequentially. The company’s debt level seems unmanageable, given a comparatively low cash balance. Hence, we believe that Huntington carries a higher likelihood of defaulting interest and debt repayments if the economic situation worsens.
The majority of Huntington’s loan portfolio (55% as of Mar 31, 2022) comprises total commercial loans. Such high exposure to commercial loans depicts a lack of diversification, which can be risky for the company amid any unfavorable development in the economy and competitive markets.
Currently, HBAN carries a Zacks Rank #3 (Hold). Over the past year, shares of the company have declined 18.1%, narrower than the 20.5% fall recorded by the industry.
Independent Bank’s Zacks Consensus Estimate for current-year earnings has been revised upward over the past 30 days. Over the past six months, shares of IBCP have declined 19%.
Civista Bancshares also witnessed an upward earnings estimate revision for 2022 over the past 30 days. Over the past six months, shares of CIVB have declined 16.5%.
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Inorganic Moves Aid Huntington (HBAN) Amid Rising Costs
Over the past few years, Huntington Bancshares Incorporated (HBAN - Free Report) has expanded its footprint and capabilities in a number of verticals through acquisitions. However, the rising cost base and high debt levels keep us apprehensive.
Recently, the company acquired Torana to enhance its digital capabilities and enterprise payment strategy. In March 2022, it inked an agreement to acquire Capstone Partners, an investment banking (IB) firm. The transaction is in sync with Huntington’s efforts to expand its capital markets business and is expected to close by the end of the second quarter. Thus, such inorganic efforts will help the company to gain significant market share and, thereby, enhance its profitability over the long run.
The merger with TCF Financial made HBAN a top 25 U.S. bank holding company in the United States. This scale has enabled the company to enjoy decent deposit and loan growth. Growth in commercial as well as mortgage, auto and RV/marine loans will improve the lending act. Given the encouraging signs of an improving economy and growth in lending pipelines, we believe that both loan and deposit balances will rise.
The company has been dynamically managing its balance sheet to increase asset sensitivity. It has been investing in shorter duration and high-coupon securities, which offer faster reinvestment as rates rise. Such efforts adequately position it for a potential rise in interest rates.
However, non-interest expenses saw an increasing trend over the last four years (ended 2021), with the rise continuing in first-quarter 2022. HBAN intends to invest in digital capabilities, marketing and hiring personnel to aid its revenue growth initiatives. These are likely to keep its expense base higher, impeding bottom-line growth.
As of Mar 31, 2022, the company held a long-term debt of $7.16 billion, higher than cash and due from banks of $1.71 billion. Also, its times interest earned of 8.8 declined sequentially. The company’s debt level seems unmanageable, given a comparatively low cash balance. Hence, we believe that Huntington carries a higher likelihood of defaulting interest and debt repayments if the economic situation worsens.
The majority of Huntington’s loan portfolio (55% as of Mar 31, 2022) comprises total commercial loans. Such high exposure to commercial loans depicts a lack of diversification, which can be risky for the company amid any unfavorable development in the economy and competitive markets.
Currently, HBAN carries a Zacks Rank #3 (Hold). Over the past year, shares of the company have declined 18.1%, narrower than the 20.5% fall recorded by the industry.
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Stocks That Warrant a Look
A couple of better-ranked stocks from the banking space are Independent Bank Corporation (IBCP - Free Report) and Civista Bancshares, Inc. (CIVB - Free Report) . IBCP and CIVB currently carry a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Independent Bank’s Zacks Consensus Estimate for current-year earnings has been revised upward over the past 30 days. Over the past six months, shares of IBCP have declined 19%.
Civista Bancshares also witnessed an upward earnings estimate revision for 2022 over the past 30 days. Over the past six months, shares of CIVB have declined 16.5%.