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First Horizon Poised to Grow Organically: Should You Hold?

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On Jan 6, we issued an updated research report on First Horizon National Corporation (FHN - Free Report) . The company is well positioned for organic growth, supported by a rise in loan and deposit balances. Further, it is likely to gain from a strong capital position. However, rising expenses and pressure on net interest margin due to lower rates remain key drags.

The Zacks Consensus Estimate for current-year earnings of $1.61 has been stable over the past 30 days. The stock currently carries a Zacks Rank #3 (Hold).

Shares of First Horizon have gained 8.2% over the past six months compared with 7.4% growth of the industry.

Consistent rise in loans and deposit balances reflects First Horizon’s organic growth potential. Loans recorded a five-year (2014-2018) CAGR of 14.1%, backed by rising commercial and consumer loans. Also, deposits witnessed a CAGR of 15.9%.  We believe, given the continuation of such a momentum, the company is poised for solid organic growth.

The company is involved in repositioning and restructuring efforts, which we believe will help reallocate capital into its core markets, thereby improving profitability. Also, it was involved in a number of acquisitions, which greatly diversified its product offerings and strengthened footprint in Carolina and Florida markets.

First Horizon continues to enhance shareholders’ value through steady capital-deployment activities. In January 2019, the company announced a 17% dividend hike. Furthermore, the board of directors increased the share repurchase authorization to $500 million through Jan 31, 2021. These activities seem sustainable, given the company’s strong capital position.

However, pressure on margin due to the Federal Reserve’s accommodative monetary policy and lower yields is affecting the bank’s key metric — net interest margin.

Also, despite the company undertaking cost saving initiatives through process improvement and branch network optimization, non-interest expenses witnessed a three-year (2016-2018) CAGR of 14.9%. Higher compensation and employee benefit costs, as well as acquisition-related costs are the primary reasons for the rise.

Stocks to Consider

F.N.B. Corporation (FNB - Free Report) has witnessed upward earnings estimate revisions for 2019 over the past 60 days. Moreover, this Zacks #2 Ranked (Buy) stock has rallied 6.7% over the past six months. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Hilltop Holdings Inc. (HTH - Free Report) 2019 earnings estimates have been revised upward over the past 60 days. Further, the company’s shares have gained 15% over the past six months. At present, it carries a Zacks Rank of 2.

Franklin Financial Network, Inc. (FSB - Free Report) earnings estimates for 2019 have moved north in 60 days’ time.  Additionally, the stock has appreciated 19.9% over the past six months. It currently carries a Zacks Rank #2.

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