Key Takeaways
- Huntington Bancshares ($HBAN) has revised its 2027 earnings per share (EPS) outlook downwards by approximately 14.8% at the midpoint, from a previous range of $2.00-$2.20 to $1.75-$1.83.
- Following the announcement, $HBAN shares declined by 5.8% to $13.50 in intraday trading on October 26, 2023.
- The lowered outlook signals persistent challenges for regional banks in managing net interest margins amidst elevated funding costs and intensifying deposit competition.
- Investors are now grappling with the prospect of a prolonged period of margin compression and slower loan growth for the sector.
Huntington Bancshares Revises Long-Term Projections Amid Sector Headwinds
Huntington Bancshares ($HBAN) significantly lowered its 2027 earnings per share (EPS) forecast to a range of $1.75-$1.83, a notable reduction from its prior projection of $2.00-$2.20, as detailed during its investor day on October 26, 2023. This material revision underscores deepening concerns over sustained elevated funding costs, intensified competition for deposits, and a more tempered outlook for loan growth across the banking sector. The new midpoint of $1.79 represents a 14.8% decrease from the previous midpoint of $2.10.
The downward adjustment sent immediate ripples through the market, with $HBAN shares declining by 5.8% to $13.50 in early trading on October 26, 2023. This sharp reaction indicates investor apprehension regarding the bank's long-term profitability trajectory and reflects broader anxieties about net interest margin (NIM) compression impacting regional financial institutions. The announcement also pressured the broader regional banking index.
Market Impact
The 5.8% drop in $HBAN shares pushed the stock to its lowest level since August 2023, trading at $13.50, and marked its largest single-day percentage decline since the regional banking turmoil of March 2023. Trading volume surged, with over 15 million shares exchanging hands by midday, significantly exceeding its 30-day average volume of 9.2 million shares, signaling strong bearish sentiment. The bank's market capitalization shed approximately $650 million in value following the update.
The impact was not isolated to Huntington. The broader SPDR S&P Regional Banking ETF ($KRE) also experienced a decline of 1.2% to $42.10, indicating a sector-wide re-evaluation of growth and profitability prospects. Concerns about NIM compression, driven by rising deposit costs and a flattening yield curve, have been a recurring theme for regional banks, and $HBAN's revised outlook amplified these worries. This development could lead to a reassessment of valuation multiples across the regional banking cohort, especially for those with similar deposit profiles or loan concentrations.
What Analysts Are Saying
Several institutional analysts swiftly reacted to Huntington's revised outlook, largely echoing the bank's cautious tone. According to a note from JPMorgan Chase analysts, "The updated guidance from $HBAN reflects the 'higher for longer' interest rate environment's persistent drag on funding costs, which is proving more challenging to offset than previously anticipated." They highlighted that deposit betas — the sensitivity of deposit rates to changes in market rates — are rising faster than expected.
Wells Fargo analysts noted that "while loan growth remains a strategic priority for Huntington, the revised outlook suggests a more constrained environment where balancing growth with margin preservation is increasingly difficult." They pointed to a potential slowdown in commercial real estate and commercial and industrial lending, key segments for $HBAN, which could further pressure revenue generation through 2027.
Conversely, a more optimistic view, albeit a minority one, from a boutique research firm suggested that "the proactive downward revision, while painful in the short term, provides a more realistic and achievable baseline for future performance." This perspective argues that resetting expectations now could prevent further negative surprises, potentially paving the way for a more stable outlook once interest rates begin to normalize. However, this view acknowledges that the path to normalization remains uncertain.
What to Watch
Investors should closely monitor several key factors that could influence Huntington Bancshares' performance and the broader regional banking sector. The Federal Reserve's upcoming interest rate decisions will be paramount; any indication of a potential rate cut or a sustained pause could alleviate some pressure on funding costs, though the timing remains uncertain. The next Federal Open Market Committee (FOMC) meeting on December 12-13, 2023, will be a critical date.
On the technical front, $HBAN shares are currently testing a key support level around $13.20. A sustained break below this could signal further downside, while a rebound towards the $14.50 resistance level would indicate some stabilization. The bank's performance in its upcoming Q4 2023 earnings report, expected in late January 2024, will provide further clarity on current quarter trends in net interest income and loan growth.
Furthermore, investors should watch for any shifts in deposit competition and customer behavior. A significant outflow of low-cost deposits or continued aggressive pricing from larger institutions could exacerbate margin compression. Conversely, a stronger-than-expected economic rebound or robust loan demand, particularly in the Midwest markets where $HBAN has a strong presence, could provide an upside catalyst, potentially mitigating some of the projected headwinds.
