Expansion Into The Carolinas Will Drive Future Success

Key Takeaways

• Strategic geographic expansion and commercial banking initiatives are anticipated to drive significant revenue and earnings growth.
  
• Dynamic balance sheet management and fee revenue growth strategies are set to enhance profitability amidst changing market conditions.
  
• Strategic banking expansion and internalization efforts carry significant risk of impacting revenue, lending capacity, and margins amid potential economic shifts and deposit growth challenges.

Catalysts

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

• Huntington Bancshares is seeing accelerated loan growth due to new initiatives in expanded geographies and commercial banking verticals, which is expected to positively impact future revenue and earnings growth.
  
• The bank is managing the balance sheet dynamically as the market enters a declining Fed rate cycle, and it expects to deliver record net interest income in 2025, which should enhance revenue and profitability.
  
• Huntington is focusing on fee revenue growth through payments, wealth management, and capital markets, forecasting an upturn in these areas to increase overall earnings.
  
• The strategic expansion into fast-growing markets like the Carolinas, coupled with the integration of merchant acquiring capabilities, is anticipated to boost fee revenue, contributing to the bank's earnings.
  
• Huntington's strong credit performance, with stable net charge-offs and lower nonperforming assets, supports a foundation for increased net margins and profitability as the company leverages its disciplined credit management practices.

Huntington Bancshares Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Huntington Bancshares's revenue will grow by 6.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 22.7% today to 23.6% in 3 years time.
• Analysts expect earnings to reach $1.9 billion (and earnings per share of $1.36) by about December 2027, up from $1.5 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $2.4 billion in earnings, and the most bearish expecting $1.7 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 16.3x on those 2027 earnings, up from 16.2x today. This future PE is greater than the current PE for the US Banks industry at 12.9x.
• Analysts expect the number of shares outstanding to decline by 1.04% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.29%, as per the Simply Wall St company report.

Huntington Bancshares Future Earnings Per Share Growth

Risks

• The company's strategy involves geographic and commercial banking expansion, which inherently carries execution risk and could impact revenue and profitability if growth initiatives don't deliver as expected.
  
• There is a reliance on sustained deposit growth to fuel loan expansion; any failure to maintain this growth could limit lending capacity, impacting net interest income.
  
• An anticipated declining Fed rate cycle might lead to fluctuating net interest margins, which could affect revenue and earnings if market conditions change unpredictably.
  
• The shift towards internalizing merchant acquiring capabilities holds potential but also introduces operational and integration risks, possibly affecting fee revenue.
  
• The credit quality is stable, but any shift in the economic environment or customer performance could lead to increased charge-offs, negatively impacting earnings and net margins.

Valuation

• The analysts have a consensus price target of $18.46 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 $22.0, and the most bearish reporting a price target of just $14.5.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $8.1 billion, earnings will come to $1.9 billion, and it would be trading on a PE ratio of 16.3x, assuming you use a discount rate of 6.3%.
• Given the current share price of $16.94, the analyst's price target of $18.46 is 8.2% 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.