Updated from 11:54 a.m ET with afternoon market action and Huntington's interest rate shock analysis showing benefits of rising rates.
NEW YORK ( TheStreet) -- Huntington Bancshares (HBAN - Get Report) is an excellent play for investors looking for a bank stock that will benefit when short-term rise, according to Bank of America Merrill Lynch analyst Erika Penala.
In a report on Thursday, Penala wrote that in light of the recent spike in market rates for 10-year U.S Treasury bonds, her research team updated its proprietary rate scorecard for banks. The analysts found that the regional banking names covered by their firm that would see the greatest earnings benefit from an increase in short-term rates included Zions Bancorporation (ZION - Get Report), Comerica (CMA - Get Report), KeyCorp (KEY - Get Report), Huntington and Fifth Third Bancorp (FITB - Get Report).
Penala has neutral ratings on all the above names, except for Huntington Bancshares of Columbus, Ohio, which she rates a "buy," because the stock's valuation is "still reasonable," amid a strong rally for bank stocks. Her price target for the shares is of $8.00.
|Huntington CEO Stephen Steinour|
While including Huntington as the only buy-rated name among covered regional banks best-positioned for rising short-term rates Penala also said that Huntington was among two regional banks "best positioned to defend" their net interest margins, also including Capital Bank Financial (CBF) of Coral Gables, Fla., which she also rates a "buy," with a price target of $23.00.
Defending the Net Interest MarginThe Federal Reserve has kept the short-term federal funds rate in a range of zero to 0.25% since later 2008. Since September, the central bank has been making monthly purchases of $85 billion in long-term securities in an effort to hold long-term rates down. So most banks have already seen the bulk of the benefits from lower funding costs, while their assets have continued to reprice lower. This has led to net interest margin pressure for most banks. The margin is the spread between the average yield on loans and investments and the average cost for deposits and borrowings.
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