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Why First Horizon (FHN) Should be Added to Your Portfolio?

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With focus on positive operating leverage and sturdy balance-sheet growth across multiple areas, First Horizon National Corporation (FHN - Free Report) appears a solid bet now. The company’s restructuring activities and expansion mode are anticipated to yield positive results for the stock.

Moreover, the recent interest rate hikes are likely to bring more stability to top-line generation. Therefore, it’s a good idea to add stocks with robust fundamentals and long-term growth opportunities to your portfolio at the current level. First Horizon is one such stock.

With $29.4 billion in assets as of Jun 30, 2017, First Horizon’s strengths include organic and inorganic growth strategies, cost control and strong liquidity position.

Additionally, this Zacks Rank #2 (Buy) stock gained 16.6% over the past year compared with 25.1% growth in the industry it belongs to.



Why is First Horizon an Attractive Pick?  

Benefit from Rate Hike: With a rise in rates, banks are likely to engage in more investment activities. This rate hike will also allow banks to lend at higher rates. As First Horizon currently derives around 60% of its revenues from net interest income, the company is set to benefit from the recent rate hikes.

Earnings Strength: First Horizon recorded earnings growth rate of 45.8% over the last three to five years. Retaining the earnings momentum, the earnings growth rate is anticipated to be around 19.6% for the current year and 15.8% for 2018. Good news is that the company recorded an average positive earnings surprise of around 1% over the trailing four quarters.

Prudent Expense Management: First Horizon’s cost-containment measures have supported bottom-line improvement for the past several quarters. Though non-interest expenses underlined a volatile trend over the past few years, the company remains committed toward expense management, through process improvement, branch network optimization and other efficiencies. Notably, the company recorded a negative 3-year CAGR of 22% (2012-2014), it escalated year over year in 2015. However, it declined 12.2% in 2016 and fell slightly in the first half of 2017, highlighting First Horizon’s cost-control efforts.

Strategic Moves: First Horizon has executed several strategic repositioning efforts to improve its long-term profitability. Forming the fourth largest regional bank in the Southeast, in May 2017, First Horizon entered into a stock-cash acquisition deal with Capital Bank Financial Corp. Previously, in April 2017, the company acquired Houston-based financial company — Coastal Securities — for $160 million in cash. Strengthening its restaurant franchise finance business, in September 2016, First Horizon acquired the restaurant franchise loans from GE Capital worth $535 million. Also, last year, the company fortified its North Carolina footprint with the acquisition of Raleigh, N.C.-based TrustAtlantic Financial Corp.

Strong Leverage: First Horizon’s debt/equity ratio is valued at 0.38 compared to the S&P 500 average of 0.68, indicating relatively lower debt burden. It highlights the financial stability of the company even in adverse economic conditions.

Superior Return on Equity (ROE): First Horizon’s ROE of 9.1% compared with the industry’s 8.2% average, highlights the company’s commendable position over its peers.

Stock is Undervalued: First Horizon has P/E and P/B ratios of 15.57 and 1.5 compared to the S&P 500 average of 19.01 and 3.16, respectively. Based on these ratios, the stock seems undervalued.

Bottom Line

Dual focus on restructuring and cost control is likely to boost the company’s profitability, going forward. Also, its asset base remains stabilized. Moreover, the company’s efforts to strengthen its core Tennessee banking franchise bode well for the long term.

Other Stocks to Consider

Some other top-ranked stocks in the same space are LPL Financial Holdings Inc. (LPLA - Free Report) , with a Zacks Rank #1 (Strong Buy), while FB Financial Corporation (FBK - Free Report) and Salisbury Bancorp, Inc. carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

LPL Financial’s earnings estimates for 2017 have been revised 4.1% upward, over the last 60 days. Further, in a year’s time, the company’s shares have jumped 56.1%.

FB Financial’s earnings estimates have been revised 2.7% upward for 2017, in the past 60 days. Also, its share price surged 73.4% over the last year.

Salisbury Bancorp witnessed a 2.4% upward earnings estimates revision for the current year, over the last 60 days. Moreover, in the past year, its shares have gained 38.4%.

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