Why Missing Estimates Was Good For Huntington Bancshares Investors
Tim is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
It never fails; in the midst of earnings season there are always companies that perform exceptionally well, only to drop because they didn’t meet the vaunted “analyst estimates.” As an investor it would be easy to find this trend frustrating -- a stock dropping because profit increased, but just not enough to appease analysts. But for the savvy investor, these pose great opportunities to buy on the downside because invariably The Street comes back to fundamentals.
One such example is Huntington Bancshares (NASDAQ: HBAN), a $5 billion super regional bank holding company with branches across the Southeast and Midwest U.S. The stock is currently trading down about 3% after this morning’s earning’s announcement. For prospective investors, it couldn't get much better than this.
First analyst expectations -- consensus estimates suggested HBAN would generate $653 million in revenue. The reality was $644.4 million in revenue was generated, primarily because of a lack of non-interest income. Now we all know with the regulatory changes that kicked in Q4 of 2011, non-interest income numbers were not going to be the same going forward, so that's no surprise. Quarterly profit also disappointed, coming in at $126.9 million. Apparently, based on estimates and the reaction of today’s investors, the annual earnings of $542+ million was also bad news.
Ah, but let's look at this from a different perspective. Year-over-year Q4 profit rose over 3%, during what can only be called a difficult time for the banking industry. The bank’s loan loss provision, a measure (among others) of the quality of an institution’s loan portfolio, was nearly cut in half from $87 million to just over $45 million -- certainly an indication management is moving toward a quality portfolio of retail and commercial loans.
For the year Huntington Bancshares obliterated 2010 earnings numbers, climbing to over $542 million from fiscal 2010’s $312.35 million. And the bank gets punished for that? No need trying to make sense of it, just take advantage of it. Compared to similar sized regional banks in HBAN’s sector, the current stock price of $5.85 a share is ridiculously cheap too. With an 11.58 price-to-earnings ratio, HBAN is on sale compared to $1.75 billion FirstMerit Corp’s (NASDAQ: FMER) 15.07 and $1.57 billion and F.N.B. Corp.’s (NYSE: FNB) 17.23 P/E.
In the interest of fair play it must be noted that Huntington’s 2.65% dividend lags the 3.93% and 3.86% of FMER and FNB, respectively. But with considerably more upside and a chance to take advantage of “missing analyst estimates,” HBAN is the clear choice.
The investment opinions included are just that, opinions. Tim is not a licensed investment professional, nor has he been for several years. Investing involves risk, as you well know, so consider your decisions wisely.