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Balanced Risk-Reward for First Horizon

Zacks Equity Research

On Mar 10, 2014, we issued an updated research report on First Horizon National Corporation (FHN). This Southeast bank recently reported impressive fourth-quarter 2013 results. Results were aided by lower operating expenses, increased deposit balances and strong capital ratios, partially offset by a declining top line and lower loan balance. Though the company shows stability in its fundamentals, we remain cautious due to the current economic uncertainty across the industry.

First Horizon reported fourth-quarter 2013 earnings of 21 cents per share, beating the Zacks Consensus Estimate by 23.5%. Net income available to common shareholders was up 21% year over year to $49.1 million.

First Horizon exhibited a decent performance in 2013 as evident from its earnings history. In 2013, the company posted in-line earnings in 2 quarters, delivered a positive earnings surprise in 1 quarter and missed in the remaining quarter.

Adversely affected by the disappointing mortgage market, First Horizon intends to exit from national mortgage and construction lending business and is focused on driving earnings from its core Tennessee banking franchise. We believe such repositioning activities will be beneficial for the company in the long run.  

Further, First Horizon’s cost control measures have helped improve operating efficiencies. Notably in 2013, the company recorded a 16% year-over-year decline in non-interest expenses and management expects annualized expenses to be below $900 million in 2014.

Despite strong fundamentals, we believe there are certain issues that may pose threats to the company’s financials in the near term. These include absence of credible improvement in the mortgage market, declining net interest margin due to low interest rate environment and the prevailing stringent regulatory landscape.

Further, the Zacks Consensus Estimate over the past 60 days declined 5.5% to 69 cents per share for 2014. Also, for 2015 it declined 7.6% to 85 cents per share, over the same time frame.

First Horizon currently carries a Zacks Rank #3 (Hold).

Key Picks from the Sector

Stocks that are worth considering in the sector include Access National Corporation (ANCX), Bank of Kentucky Financial Corp. (BKYF) and SY Bancorp Inc. (SYBT). All these stocks carry a Zacks Rank #1 (Strong Buy).

Read the Full Research Report on FHN
Read the Full Research Report on ANCX
Read the Full Research Report on SYBT
Read the Full Research Report on BKYF

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