Huntington Bank Earnings: Not Much Affected by Sector Turmoil

Huntington Bancshares Stock at a Glance

Current Morningstar Fair Value Estimate: $15.00

Stock Star Rating: 4 Stars

Uncertainty Rating: High

Economic Moat Rating: Narrow

Huntington Bancshares Earnings Update

Narrow-moat-rated Huntington HBAN reported first-quarter results that show earnings pressure is building, but we view the pressure as manageable. We had already expected fourth-quarter results would be the peak for profitability in the current rate cycle, and while the drop-off from that peak has accelerated a bit, it is nothing categorically different. Even after reviewing the damage of a post-March banking environment, we think the market is still undervaluing Huntington stock.

As we update our projections once again and make sure we are being prudent with our through-the-cycle net interest margin estimate (assuming rates eventually fall from current levels), we do not expect a material change to our $15 fair value estimate on Huntington stock. We believe the shares remain moderately undervalued, although admittedly not as much as some peers.

Huntington saw its deposit base decrease only slightly in the first quarter, down 2%, which fits well within our existing forecast for a 3% decline for the year. The bank adjusted its full-year deposit growth outlook by only 1%. Funding costs are accelerating, which caused the net interest income outlook to fall to “up 6%-9%” from “up 8%-11%.” While this is not good, it represents a decrease of only $100 million in NII, and it is a better result than we were expecting in our updated March 28 forecast, where we were looking for growth of only 1% for the year. Given Huntington’s deposit base and NII profile remain relatively intact, we do not expect our longer-term forecasts will be materially affected.

For unrealized losses, even if accumulated other comprehensive income was included in capital ratios at today’s value, we would expect the bank would likely begin to meet or exceed its minimum 7.8% common equity Tier 1 requirement as soon as next quarter. Additional earnings and further AOCI amortization would only improve this math over time.