Huntington Bancshares passes the initial requirements of the Enterprising Investor but not the more conservative Defensive Investor. Specifically, the Defensive Investor is concerned by the insufficient earnings growth and stability over the last ten years, while the Enterprising Investor has no initial concerns. As a result, all Enterprising Investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.
When it comes to that valuation, it is critical to consider the company’s earnings history. In this case, it has grown its EPSmg (normalized earnings) from a loss of $1.02 in 2011 to an estimated gain of $0.73 for 2015. This level of demonstrated growth outpaces the market’s implied estimate for annual earnings growth of 3.69% over the next 7-10 years.
In recent years, the company’s actual growth in EPSmg has averaged around 34% annually, and while the ModernGraham valuation model reduces the actual growth to a more conservative figure when making an estimate, it still returns an estimate of intrinsic value well above the current price, indicating that Huntington Bancshares is significantly undervalued at the present time.
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Disclaimer: The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours. Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.
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