First Horizon National Corporation
) have recorded a year-to-date return of 12.9%. Improvement in
credit quality, disciplined expense management and healthy
capital deployment primarily drove the growth. However, we are
not so optimistic about these positives translating into further
price appreciation down the road as there will be significant
pressure on its top line.
After analyzing its fundamentals following third-quarter 2013
earnings release, our suggestion is to stay invested in the stock
but not add further shares of the company to your
Why This Stance?
Though First Horizon's third-quarter 2013 operating earnings per
share of 19 cents were in line with the Zacks Consensus Estimate,
it was higher than 10 cents earned in the prior-year quarter.
Further, due to addition of $200 million to the repurchase
reserve, the company reported loss per share of 45 cents,
including the negative impact of 64 cents (after-tax) per share.
Despite the overall sluggish economic environment, First
Horizon's credit quality continues to improve. We anticipate
asset quality to be relatively stable or enhance modestly in the
near term, given the company's continuous reduction of its
Further, First Horizon's cost containment measures have helped it
to experience bottom-line improvement over the past several
quarters. Additionally, the sale of its mortgage servicing
business can generate savings of about $20.0 million in the long
run. Going forward, we expect such achievements to boost
However, First Horizon continues to experience a shrinking
revenue base, with both interest income and fee income being
limited. Although interest rates have started rising, a
substantial improvement in NIM remains elusive in the near
Additionally, we remain concerned about issues related to the
company's mortgage repurchase. Although the company has an
adequate mortgage repurchase reserve and seeks to resolve
mortgage repurchase-related problems, it will take some time for
earnings to grow significantly.
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Estimate revisions showed a mixed trend. Over the last 30 days,
the Zacks Consensus Estimate for 2013 remained stable at 6 cents
but for 2014, it declined 1.4% to 72 cents over the same time
frame. Hence, First Horizon now has a Zacks Rank #4 (Sell).
Other Stocks to Consider
Some better-ranked banks include
American National Bankshares Inc.
First NBC Bank Holding Co.
). All these stocks carry a Zacks Rank #1 (Strong Buy).