On Apr 2, 2013, we reiterated our Neutral recommendation on First Horizon National Corporation (FHN) based on its improved credit quality metrics. However, higher expenses were the downside.
First Horizon’s fourth-quarter earnings of 17 cents per share were in line with the Zacks Consensus Estimate, but beat the prior-quarter earnings by 70%. The results were driven by considerably improved credit trends. However, the pressure on revenue growth continued. Rising expenses was also a headwind.
Over the last 60 days, the Zacks Consensus Estimate for 2013 remained stable whereas for 2014 it declined by 1%. As a result, First Horizon carries a Zacks Rank #3 (Hold).
First Horizon continued to witness overall improvement in their credit quality, but with some quarter to quarter volatility. Going forward, we believe that the asset quality will improve with continued reserve releases. We are also impressed with the company’s cost-containment measures that have helped the company deliver improved bottom-line performance even amid the sluggish macro environment. Moreover, we believe that the company’s solid capital levels will offer flexibility not only on the capital deployment but also for any strategic acquisitions in Tennessee or in the adjacent markets that will be accretive to its business model. Moreover, we are also encouraged by the several strategic repositioning efforts taken by First Horizon in order to improve long-term profitability.
However, First Horizon’s mortgage repurchase issues remain an overhang on its earnings. We are also concerned about the company’s top-line growth and margins, which continue to be impacted by the low rate environment and sluggish economic recovery. Further, the company’s significant exposure to problem loan categories, such as industrial and commercial mortgage, remains another cause for concern. Also, the sluggish macroenvironment marred by regulatory issues will limit the company’s flexibility with respect to its business investments. Considering, the balance of positives and negatives, First Horizon carries a Zack Rank #3 (Hold).
Other Major Banks Worth Considering
Other banks that are performing better than First Horizon and are worth a look include Meta Financial Group, Inc. (CASH), Flagstar Bancorp Inc. (FBC) and First Defiance Financial Corp. (FDEF). All these stocks carry a Zacks Rank #1 (Strong Buy).
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