Between data releases from the Fed and company disclosures and comments at a recent major sell-side conference, it looks to me as though the bank sector is in better shape that the valuations would suggest. While I still see credit risk before this cycle is over, bank management teams seem more concerned about the impact of rate risk than credit risk, and operating leverage is going to be an increasingly important differentiator over the next couple of years, particularly with the Fed committed to a low-rate policy through 2023.
Specific to Huntington Bancorp (HBAN), I like the strong leverage to healthy mortgages and autos, and the decline in second-round deferrals was good to see. I also like the bank’s reserve position vis a vis Fed DFAST (Dodd-Frank Act Stress Tests) estimates, and the capital position looks healthy. Lackluster near-term operating leverage is my biggest concern, but I think the bank can get back to mid-single-digit growth in three or four years. I believe fair value is around $12.50, with some upside to around $14, and the dividend is significant (and safe, in my view). Huntington isn’t my top choice, mostly because there are equally good banks at even steeper discounts, but it’s a respectable name to consider.
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Huntington Bancorp Undervalued On Stabilizing Credit And Healthy Mortgage Demand
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