Higher Rates & Loan Growth Aid Hancock Holding, Costs A Woe

Hancock Holding Company (NYSE:C) remains well positioned for growth given its strategic initiatives, persistent growth in loan and deposit balances, and improving interest rate environment.

The company’s price performance also looks impressive. Its shares have gained 14.9% in 2017, outperforming 3.3% growth of the industry.

Also, its Zacks Consensus Estimate for current-year earnings has been revised more than 10% upward over the past 60 days, reflecting analysts’ optimism regarding its earnings growth potential.

However, the continued rise in operating expenses and the company’s high exposure to risky loan portfolio remain major concerns.

Hancock Holding remains focused on its organic growth strategy. Its revenues have seen a CAGR of 7% over the past four years (2014-2017), supported by continued rise in loans (total loans net of unearned income increased at a six-year CAGR of 10.4% (2012-2017). Moreover, the company’s implementation of initiatives to enhance its core revenues looks encouraging. Further, its deal to acquire the asset management and trust business of Capital One will likely continue to support growth.

Additionally, given the gradual improvement in the rate environment, Hancock Holding’s net interest margin (NIM) started to witness an increase after facing a declining trend over the past several years. Given the continued rise in loan demand and potential for more rate hikes, NIM is expected to improve further.

Moreover, given a solid liquidity position, the company is expected to continue enhancing shareholder value through consistent dividend payments.

On the flip side, mounting expenses remain a concern for the company. Total non-interest expenses (excluding non-operating expenses) have seen a four-year (2014-2017) CAGR of 4.6%. In fact, expenses are likely to remain elevated in the near term as the company continues to expand inorganically and hire additional workforce.

Also, the company has significant exposure to residential mortgage, construction and land development as well as commercial real estate loans, which are expected to hurt financials. Though the housing sector has been gradually improving, any future deterioration in the real estate prices will pose a risk for the company. Additionally, while oil prices have gradually stabilized and stress in energy portfolio is no longer a big concern, the company’s exposure to such portfolio calls for higher provisions, which will strain its profitability.

A few other stocks in the finance space that are witnessing improving earnings estimate revisions are Citigroup (NYSE:C) , BB&T Corporation (NYSE:BBT) and Comerica Incorporated (NYSE:CMA) .

Citigroup has witnessed an upward earnings estimate revision of 6.8% for the current year over the past 60 days. Also, its share price is up nearly 24%, over the past year.

BB&T’s earnings estimates have been revised upward by 12.1% for the current year in the past 60 days. Also over the past year, its share price increased nearly 10%.

Comerica recorded an upward earnings estimate revision of 17.7% for the current year in the past 60 days. Also, its share price has increased more than 32% rise over the last year.

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