Keeping a Sell on Huntington Bank
We are maintaining our Sell recommendation on Huntington Bancshares, Inc. (HBAN), as weaknesses in the housing and credit environments continue to impact the company, creating the potential for negative overhangs over the next several quarters. Huntington Bancshares' loan composite remains heavily weighed to the mid-Ohio-to-eastern-Michigan markets, which are under severe stress currently. The company also cut its 2008 outlook.
Considering we are in the initial stages of a housing market correction, delinquencies will continue to rise undoubtedly, which should translate into substantially higher levels of losses throughout 2008 and potentially into 2009. Based on the company's new guidance we are lowering our earnings forecasts to $1.35 per share from $1.40 for 2008 and to $1.50 per share from $1.60 for 2009. We think competitive market conditions, credit quality overhang and rating downgrades by S&P and Fitch will weigh upon its shares for several quarters to come.
HBAN currently trades at 6.4x the consensus forward estimate a 54 percent discount to the peer group median. Relative pricing looks attractive on a P/E-to-growth (PEG) basis, using the consensus forward estimate and the consensus long-term growth rate. Our new six-month target price is $7.50. In addition, the quantitative Zacks Rank for HBAN is currently 3 (up from 4 on April 1, 2008), indicating no clear directional pressure on the shares over the near term.
Read the full analyst report on HBAN
DOW May Be Entering Down-Cycle
We are forced to rate Dow Chemical (DOW), the world's second leading chemical company, as a Hold. This is due to the company's high exposure to the commodity chemical cycle, which may be entering a negative phase, as well as high raw material costs.
The company's costs are low due to vertical integration, and it has solid financials. Stronger demand in Europe, Asia/Pacific and in faster-growing geographic markets like Latin America, India, Middle East and Africa more than offset the continued economic slowdown in North America. The company reported a growth of 19% in sales for the first quarter. DOW is looking at joint ventures [JVs] to raise cash and business expansion and recently announced a JV with PIC (Kuwait).
However, the economic slowdown in North America is a concern for Dow since the company generates approximately 40% of its revenues from the region. On June 1, DOW increased prices by 20%. On May 30, the company delayed its new petrochemical plant to be built with Oman until 2012.
Currently, Dow is valued at 11.5x our 2008 estimate of $3. We set a target price of $37.50. This is 10.8x our 2008 estimate.
Read the full analyst report on DOW
DuPont Feels Impact from Housing
We stick to our Hold view on DuPont Co. (DD), which expects to generate $1.7 billion in productivity gains over the next three years by continuing its efforts to streamline its supply chains and business support operations. Given the rapid rise in global food production, DuPont is focusing on boosting farm productivity. Sales in the non-G7 countries are 37 percent of revenues and are growing at 17 percent per year.
Going forward, growth will be driven by non-G7 markets, agricultural chemicals, a focus on key customers, and new products. Strong presence in the agricultural products market, emerging markets, pricing actions, favorable currency and productivity is likely to outweigh increasing costs and weak auto and housing markets. However, slowing demand in the U.S.
