Huntington Bancshares Incorporated (NASDAQ:HBAN) shares are up more than 1.06% this year and recently increased 1.67% or $0.22 to settle at $13.36. Associated Banc-Corp (NYSE:ASB), on the other hand, is down -1.62% year to date as of 11/13/2017. It currently trades at $24.30 and has returned -3.38% during the past week.
Huntington Bancshares Incorporated (NASDAQ:HBAN) and Associated Banc-Corp (NYSE:ASB) are the two most active stocks in the Regional – Midwest Banks industry based on today’s trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.
The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect HBAN to grow earnings at a 9.50% annual rate over the next 5 years. Comparatively, ASB is expected to grow at a 6.70% annual rate. All else equal, HBAN’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Growth isn’t very attractive to investors if companies are sacrificing profitability and shareholder returns to achieve that growth. We will use EBITDA margin and Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return., compared to an EBITDA margin of 46.6% for Associated Banc-Corp (ASB). HBAN’s ROI is 11.20% while ASB has a ROI of 16.00%. The interpretation is that ASB’s business generates a higher return on investment than HBAN’s.
Earnings don’t always accurately reflect the amount of cash that a company brings in. HBAN’s free cash flow (“FCF”) per share for the trailing twelve months was +0.31. Comparatively, ASB’s free cash flow per share was +0.27. On a percent-of-sales basis, HBAN’s free cash flow was 8.86% while ASB converted 3.57% of its revenues into cash flow. This means that, for a given level of sales, HBAN is able to generate more free cash flow for investors.
HBAN’s debt-to-equity ratio is 0.96 versus a D/E of 0.16 for ASB. HBAN is therefore the more solvent of the two companies, and has lower financial risk.
HBAN trades at a forward P/E of 12.53, a P/B of 1.51, and a P/S of 4.33, compared to a forward P/E of 15.07, a P/B of 1.20, and a P/S of 4.25 for ASB. HBAN is the cheaper of the two stocks on an earnings basis but is expensive in terms of P/B and P/S ratio. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.
Analyst Price Targets and Opinions
A cheap stock is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. HBAN is currently priced at a -11.7% to its one-year price target of 15.13. Comparatively, ASB is -5.85% relative to its price target of 25.81. This suggests that HBAN is the better investment over the next year.
The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 2.20 for HBAN and 2.90 for ASB, which implies that analysts are more bullish on the outlook for ASB.
Risk and Volatility
To gauge the market risk of a particular stock, investors use beta. Stocks with a beta above 1 are more volatile than the market as a whole. Conversely, a beta below 1 implies below average systematic risk. HBAN has a beta of 1.34 and ASB’s beta is 1.20. ASB’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Analysts often look at short interest, or the percentage of a company’s float currently being shorted by investors, to aid in their outlook for a particular stock. HBAN has a short ratio of 2.45 compared to a short interest of 3.68 for ASB. This implies that the market is currently less bearish on the outlook for HBAN.
Huntington Bancshares Incorporated (NASDAQ:HBAN) beats Associated Banc-Corp (NYSE:ASB) on a total of 9 of the 14 factors compared between the two stocks. HBAN is growing fastly, is more profitable, has higher cash flow per share, has a higher cash conversion rate and higher liquidity. HBAN is more undervalued relative to its price target. Finally, HBAN has better sentiment signals based on short interest.