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On Jun 16, we issued an updated research report on First Horizon National Corp. FHN. The company has been witnessing steady growth in loans, along with support from inorganic growth strategies. However, pressure on the net interest margin (NIM) due to a low interest-rate environment and escalating expenses are concerns.
First Horizon has banked on acquisitions to boost its long-term profitability. Notably, the company recently received regulatory approval for an all-stock merger deal with Lafayette, LA-based IBERIABANK Corporation, likely to close on Jul 1, 2020. The combined entity will likely record operating and return metrics with cost savings on a fully-phased in basis, and will be aimed at capturing market opportunities and boosting the client base.
Further, First Horizon has been witnessing steady growth in loans amid the competitive banking environment. Commercial and consumer loans witnessed a compounded annual growth rate (CAGR) of 15.1% in the last five years (2015-2019) with some annual volatility. In addition, deposits witnessed a CAGR of 14.7% during the same time period. Both metrics continued to improve in the first three months of 2020. Though First Horizon held short-term and term borrowings (one year or more) worth $4.8 billion as of Mar 31, 2020, the company holds strong liquidity to manage the debt levels.
Moreover, the company remains committed toward enhancing its shareholder value on steady capital-deployment activities. However, the bank has temporarily suspended its share-buyback program, following the coronavirus-related slowdown. This January, the company announced a 7% dividend hike. Also, in 2019, the board of directors increased the share-repurchase authorization to $500 million, through Jan 31, 2021.
However, the bank’s NIM declined in 2019 and first-quarter 2020 on decline in interest rates and strong deposit growth, leading to higher excess cash balances. Given the Federal Reserve’s accommodative monetary-policy stance and lower yields, we expect the bank’s key metric to remain under pressure in the quarters ahead.
Also, elevated expenses are a major headwind for the company. Non-interest expenses witnessed a three-year (2017-2019) CAGR of 9.7%, with the trend continuing in the first quarter. Higher compensation and employee benefit costs, as well as acquisition-related costs are the primary reasons for the upswing.
The Zacks Consensus Estimate for earnings has been unchanged for 2020 and 2021, over the past month. The stock currently carries a Zacks Rank #3 (Hold).
Shares of the company have appreciated 49%, over the past three months, compared with the 36.4% rise recorded by the industry.
Stocks to Consider
AllianceBernstein L.P. AB witnessed an upward earnings estimate revision of 6.3% for 2020 over the past 60 days. Its shares have lost 8% over the past year. At present, it sports a Zacks Rank of 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
BrightSphere Investment Group Inc. BSIG recorded an upward earnings estimate revision of 16% for the current year over the past 60 days. Its shares have depreciated 5.9% over the past year. It currently sports a Zacks Rank of 1.
Encore Capital Group, Inc. ECPG has witnessed a 5.4% upward earnings estimate revision for the ongoing year in the past 60 days. Its shares have gained 4.7% over the past year. Currently, it carries a Zacks Rank of 2 (Buy).
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