Why I Don't Agree With The Recent Downgrade Of Huntington Bancshares

| About: Huntington Bancshares (HBAN)

Huntington Bancshares (NASDAQ:HBAN) saw its shares downgraded by FBR Capital Markets to an underperform rating recently. I am bullish on Huntington Bancshares and think the downgrade was unwarranted.

Huntington is expanding its services and offerings throughout is core Midwest region. Earlier this month, Huntington signed a deal with leading grocery retailer, Meijer. A 10-year agreement was announced between both parties on May 2. Steelcase (NYSE:SCS) will help with the design of stores and the interior office layout.

The new deal will add Huntington branches inside of Meijer stores around the Midwest. The deal also increases Huntington's presence in the state of Michigan. By the end of the project's completion, Huntington will have over 200 branch locations, which will increase its current footprint by more than 50%. Huntington branches inside of Meijer's will be open seven days a week and have extended hours. The convenience of being able to bank at different times with the added availability of shopping and banking together could have customers switching to Huntington Bank.

Huntington pulled off a similar move in its home state of Ohio during 2010. Huntington added in-store models of its banks inside Giant Eagle supermarket stores. Huntington added over 100 Ohio locations through that partnership with the grocery chain. The new deal gets Huntington a presence in several Michigan cities, including Lansing, Ann Arbor, Flint, Jackson, Battle Creek, Gaylord, and Cadillac.

Huntington Bank offers banking services, loans, brokerage services, and wealth management in a six states in the United States: Ohio, Michigan, Pennsylvania, Indiana, West Virginia, and Kentucky. The company also offers auto financing in several additional states. In 2011, Huntington launched these services into Wisconsin and Minnesota. The initial base of auto financing could lead to an expansion of branches or a partnership with a local retailer to enter those states.

Huntington remains the No. 3 small business administration loan lender in the nation. The bank is the largest SBA lender in the Midwest region. The ranking of third is Huntington's fifth consecutive time for the number of SBA loans and an upgrade to the third position for overall dollars loaned. The bank had the No. 1 position in number of loans in the states of Ohio, Michigan, Indiana, West Virginia, and the western region of Pennsylvania. The bank was also No. 2 in a number of SBA loans in the state of Kentucky.

One of Huntington's goals is to increase the number of product offerings to each of its customers. For the first quarter of fiscal 2012, Huntington offered four or more banking services to 75.1% of its customers.

Huntington Bancshares is a large holding in the Regional Banking ETF from SPDR. The SPDR S&P Regional Banking ETF (NYSEARCA:KRE) could be worth taking a look at. Smaller banks are gaining steam. The ETF is up 15% on the year and could be a good bet for investors not willing to make individual stock picks.

Huntington Bancshares appears to be in a very good position for regional banking. Job employment numbers are improving in the Midwestern states. Real estate is also improving in the states Huntington operates within.

In 2011, Huntington reported $0.59 in earnings per share. Analysts are projecting Huntington to earn $0.63 per share in fiscal 2012. With shares trading at $5.89, the current price-to-earnings ratio is 9.3. I think shares should trade closer to a multiple of 15 times current earnings. This represents a target price of $9.45, representing an upside of 60%.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in HBAN over the next 72 hours.