Huntington Pops Despite Miss, Capital Moves
Huntington Bancshares
(HBAN) - Get Report
flew higher Wednesday morning amid general market exuberance, despite its lower-than-expected earnings, dividend cut and downwardly revised outlook.
The regional bank's stock lifted 73 cents, or 7.9%, to $10.03 in recent trading. It had earlier risen more than 11%.
Huntington's gains came within an overall market rally, as investors took note of better first-quarter earnings from
JPMorgan Chase
(JPM) - Get Report
,
Coca-Cola
(KO) - Get Report
and
Intel
(INTC) - Get Report
than the Street had expected. The
Dow Jones Industrial Average
was up nearly 180 points following their reports.
Huntington's profit of $127.1 million, or 35 cents per share, fell below expectations when excluding special items. The company earned 3 cents per share from
Visa's
(V) - Get Report
, a charge reversal and tax benefits.
The average analyst estimate, which typically excludes special items, was 35 cents per share, according to Thomson Financial.
The Columbus, Ohio-based bank also cut its 2008 earnings outlook to a range of $1.45 per share to $1.50 per share from an earlier range of $1.57 per share to $1.62 per share. Analysts expect an even lower $1.40 per share, on average.
The final blow came with Huntington's decision to slice its quarterly dividend in half, to 13.25 cents per share. That translates into a dividend yield of 5.7% from a previously "outsized" yield of 11.4%, Sandler O'Neill analyst R. Scott Siefers said in a note Wednesday morning.
CEO Thomas Hoaglin called the move "painful for shareholders," but necessary to conserve capital in the turbulent markets.
In tandem with the dividend savings, Huntington will also issue up to $575 million worth of convertible preferred stock to the public and underwriters to further shore up its liquidity. The bank is building up its reserves in anticipation of higher charge-offs in coming quarters.
Siefers noted that although Huntington's first-quarter results are largely overshadowed by its dividend and stock-offering news, its net interest margins were worse than expected and credit costs were higher than expected. The analyst, who rates Huntington stock a sell with an $11 price target, said shares could soon tumble.
"We suspect that the stock could come under some additional near-term pressure due to concerns about dilution from the preferred offering, as well as the lower guidance and dividend yield," he wrote.