DCF Studio

    HBAN · NMS · Financial Services

    Huntington Bancshares Incorporated

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 18.02

    Market price

    USD 15.88

    Implied upside

    +13.5%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    Wrong toolThis is a financial. Banks and insurers report no meaningful operating income, and capex and working capital do not mean what a free-cashflow model assumes, so a DCF will misprice it. The model below runs on best-effort numbers - treat it as an illustration, not a valuation.
    AdjustedReported capital expenditure averages 2.52% of revenue against depreciation and amortisation of 8.83%. A business cannot depreciate more than it invests indefinitely. Capex has been set to 8.83% of revenue so the forecast is not handed free growth. The accounts do not separate depreciation from amortisation, so the combined charge is used - if a large part of it is amortisation of an acquisition, the reported capex is probably right and this substitution is not. Override it if the reported figure is right.

    Value Per Share

    Perpetuity growth
    USD 18.02+13.5%
    Exit multiple
    USD 23.46+47.8%
    Market price
    USD 15.88

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn1bn2bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 8.4bnUSD 8.8bnUSD 9.1bnUSD 9.5bnUSD 9.8bn+3.9%
    EBITUSD 2.9bnUSD 3.0bnUSD 3.1bnUSD 3.2bnUSD 3.3bn+3.9%
    NOPATUSD 2.4bnUSD 2.5bnUSD 2.5bnUSD 2.6bnUSD 2.7bn+3.9%
    Add depreciation & amortisationUSD 745.8mUSD 774.7mUSD 804.7mUSD 835.9mUSD 868.3m+3.9%
    Less capital expenditureUSD -745.8mUSD -774.7mUSD -804.7mUSD -835.9mUSD -868.3m+3.9%
    Less increase in working capitalUSD -315.3mUSD -327.5mUSD -340.2mUSD -353.4mUSD -367.1m+3.9%
    Free cashflow to firmUSD 2.0bnUSD 2.1bnUSD 2.2bnUSD 2.3bnUSD 2.4bn+3.9%
    Discount factor0.95950.88330.81320.74860.6892-
    Present valueUSD 2.0bnUSD 1.9bnUSD 1.8bnUSD 1.7bnUSD 1.6bn-4.4%
    Present Value Of The ForecastUSD 9.0bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta0.960Reported 0.941, pulled toward 1.0 (Blume)
    Cost of equity10.28%Risk-free + beta x equity risk premium
    Cost of debt7.00%Implied cost of debt of 24.8% is not a credible funding cost, so risk-free + 2bp is assumed instead. Interest expense and reported debt are measuring different things - common for banks, whose interest expense includes deposits that total debt excludes.
    Market capitalisationUSD 32.1bn63.5% of capital
    Total debtUSD 18.5bn36.5% of capital, book value as a proxy
    Tax rate17.9%Effective, capped at statutory
    WACC8.62%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareUSD 18.02

    71% of EV

    Forecast FCFF, final year
    USD 2.4bn
    Capex at depreciation, working capital in reinvestment
    USD 2.7bn
    Less reinvestment at g/ROIC (29.0% of NOPAT)
    USD -796.7m
    Capitalised
    USD 2.0bn
    ROIC (WACC floor)
    8.6%
    Terminal value, undiscounted
    USD 32.7bn
    Terminal value, discounted
    USD 22.5bn
    Enterprise value
    USD 31.5bn
    Less net debt
    USD 4.4bn
    Equity value
    USD 27.1bn

    Exit at 10.6x EBITDA

    Value per shareUSD 23.46

    77% of EV

    Terminal value, undiscounted
    USD 44.6bn
    Terminal value, discounted
    USD 30.7bn
    Enterprise value
    USD 39.7bn
    Less net debt
    USD 4.4bn
    Equity value
    USD 35.3bn

    Spread between methods: 26%.

    Sensitivity

    Value per share (USD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    6.62%24.3024.4124.5124.6124.72
    7.62%20.6620.7520.8420.9221.01
    8.62%17.8717.9518.0218.0918.17
    9.62%15.6715.7315.7915.8615.92
    10.62%13.8813.9413.9914.0514.10

    Outlined: this model. Green text: above today's price of 15.88. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year3.9%0.4%-3.5pp
    EBIT margin34.0%30.7%-3.3pp
    Discount rate8.6%9.6%+1.0pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.