Texas And Carolinas Expansion Will Unlock Digital Banking Opportunities

Key Takeaways

• Expansion into high-growth markets and strategic acquisitions are increasing revenue opportunities and supporting sustained earnings growth.
  
• Investments in digital platforms and operational efficiency are driving strong fee income, improved margins, and long-term profitability.
  
• Expansion risks, regional concentration, digital competition, margin pressure, and rising regulatory costs could constrain growth, profitability, and operational efficiency.

Catalysts

Operates as the bank holding company for The Huntington National Bank that provides commercial, consumer, and mortgage banking services in the United States.

• The expansion into Texas via the Veritex acquisition, combined with ongoing organic growth in high-population-growth markets (Texas, North Carolina, South Carolina), is set to substantially increase Huntington's addressable market and fee-generating opportunities, likely driving higher revenue and earnings growth as these regions mature.
  
• Investments in digital banking and value-added payments platforms, alongside strong adoption among tech-savvy demographics, have already resulted in double-digit growth in payments and wealth management fees and are expected to continue boosting noninterest income and net margin over the long term.
  
• Continued growth in primary banking relationships and disciplined deposit pricing have enabled robust deposit growth at stable or declining costs, positioning Huntington to protect or expand net interest margin and fund loan growth efficiently, supporting profitability and EPS.
  
• Strong execution in acquiring, retaining, and serving small and medium-sized business customers-including leadership in SBA lending and commercial payments-has driven above-peer loan and fee growth, supporting sustainable top-line expansion as SMEs remain a strategic focus.
  
• Enhanced efficiency through technology investment, process reengineering, and scale from recent acquisitions is delivering positive operating leverage and improving the efficiency ratio trend, providing a tailwind for net margin and long-term earnings power.

Huntington Bancshares Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Huntington Bancshares's revenue will grow by 7.3% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 27.5% today to 26.3% in 3 years time.
• Analysts expect earnings to reach $2.3 billion (and earnings per share of $1.66) by about September 2028, up from $2.0 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $2.8 billion in earnings, and the most bearish expecting $1.9 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.1x on those 2028 earnings, up from 13.0x today. This future PE is greater than the current PE for the US Banks industry at 11.9x.
• Analysts expect the number of shares outstanding to grow by 0.41% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.25%, as per the Simply Wall St company report.

Huntington Bancshares Future Earnings Per Share Growth

Risks

• Ongoing expansion into Texas and the Carolinas, along with the announced Veritex acquisition, increases integration and overexpansion risks-potential operational challenges, culture clashes, or unanticipated costs could drive up expenses and impact net margin and reported earnings.
  
• Continued heavy geographic and business concentration in the Midwest exposes Huntington to slower household formation and aging demographics, which could hinder organic deposit and loan growth, constraining long-term revenue expansion and balance sheet growth.
  
• Industry-wide digitization and the rapid evolution of fintech challenge traditional banks; if Huntington fails to accelerate digital transformation relative to larger peers or disruptors, it risks losing market share and fee income, putting pressure on revenue and ROE.
  
• Margin compression remains a concern due to persistent low or volatile interest rates; despite current NIM stability, future rate declines or heightened deposit competition could reduce net interest income and profitability.
  
• Rising regulatory scrutiny, potential for increased capital requirements, and escalating compliance costs (including cybersecurity and data privacy) could increase operating expenses and limit Huntington's ability to grow loans, thereby compressing net margins and future earnings.

Valuation

• The analysts have a consensus price target of $19.32 for Huntington Bancshares based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $21.0, and the most bearish reporting a price target of just $15.4.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $8.9 billion, earnings will come to $2.3 billion, and it would be trading on a PE ratio of 15.1x, assuming you use a discount rate of 7.2%.
• Given the current share price of $17.64, the analyst price target of $19.32 is 8.7% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.