Last Thursday, April 24th, a Board Director at Huntington Bancshares Incorporated (HBAN), David Porteous, acquired 2,760 shares of Common Stock for $9.395 per share. The insider now owns more than 700,000 shares of the company, valued more than $6.5 million. In addition to Mr. Porteous, several investment gurus and insiders hold and have been increasing their long positions in the stock. Amongst them we can count Jim Simons (Trades, Portfolio), Israel Englander, Paul Tudor Jones (Trades, Portfolio) and Ray Dalio (Trades, Portfolio). All of this bullishness leads to one simple question: why are insiders and gurus betting on this stock?
About the Company’s Turnaround
Huntington Bancshares Incorporated is a $7.7 billion market cap a multi-state financial holding company that provides a range of financial services through its subsidiary, The Huntington National Bank, the third-largest Ohio-based bank and one of the most important in the Midwest. Although it took the company several years to recover from its unfortunate acquisition of Sky Financial in 2007, it now looks like the bank is back on track (after an impressive turnaround, in my opinion). Refocused on small and middle-market customers, the company has accomplished not only to attract new customers, but also to increase its client stickiness and cross-selling capabilities.
As a result, funding costs have declined and fee income has ameliorated, at the same time as returns on equity rose -ROE tripled over the past three years. Its current ROE of 10.47% surpasses its industry´s median by 31.5%. Moreover, its return on capital of 134.65% is the best in its history, and stands well above most of its peers´.
Other fundamentals look pretty attractive as well: the company’s gross and net profit margins have been expanding lately, outperforming its competitors´ figures and growth rates. Huntington last reported its gross profit margin at 91.14%, and its net margin at 22.02%.
As the recovery continued, Huntington returned to its acquisition strategy (enabled by its strong liquidity position), with the purchases of Fidelity Bank in 2012, and Camco Financial in 2014. Moreover, the bank’s partnership with Meijer should help it further increase its market share and profitability over the longer term. Other “key areas of near-term growth include its commercial and industrial loan book, which should help offset an expected decline in mortgage banking income” (Morningstar).
Valuation and Estimates
In terms of valuation, Huntington Bancshares looks pretty attractive. Trading at 13.2 times the company´s earnings and 1.37 times its book-values, the stock exchanges at a small discount in relation to its peers. In addition, the stock pays 2.12% of the current stock price in the form of dividends (and has a story of sustained dividend growth), thus becoming an alluring option for yield-seeking investors.
Despite all of these positives, most analysts do not seem to like this stock. Most recommendations tend towards a “hold,” although a few analysts seem to feel more bullish about the firm´s future. A mean price target of 10.20 (26 analysts questioned) implies an upside potential of barely 9%. EPS growth projections are just as poor. Growth is estimated at -1.4% for this year, and 9.9% for the next year. Maybe the longer-term bodes better for the company.
Although there is not much agreement amongst analysts, insiders, hedge funds, and investment gurus seem to feel bullish about Huntington Bancshares. Trading relatively cheap, paying out a generous dividend yield, offering continuous share repurchase plans and holding several long-term growth catalysts, this certainly looks like a stock to consider.
Disclosure: Damian Illia holds no position in any stocks mentioned
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