Huntington Set For Significant Pre-Provision Profit Acceleration, But The Street Isn't All-In

 

Writing about Huntington Bancorp (HBAN) last March, I wasn’t all that excited about the stock. Although I did (and do) like the company’s decision to invest in long-term growth (including meaningful IT spending, product development, lending expansion, and the TCF deal), I had concerns about how the Street would treat a bank stock with less clear-cut operating leverage in the near term, particularly one operating in a region (the Midwest) that the Street isn’t all that excited about.

Since then the shares have chopped around between $13 and $18, but are now almost exactly where they were at the time of that last article – in the meantime, larger regional banks have done considerably better (a 15% gain in the KBW Nasdaq Bank Index), and individual names I preferred, including Keycorp (KEY) and Citizens (CFG), have done even better.

Although I do have concerns about specific points like deposit betas and loan growth acceleration/loan share gains, I’m getting more bullish on these shares, as I think the stock valuation is undervaluing the prospect of strong pre-provision profit growth over the next few years. This is now a borderline buy call with double-digit return potential, and a name I’d definitely watch more closely from here.

 

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Huntington Set For Significant Pre-Provision Profit Acceleration, But The Street Isn't All-In