We have recently reiterated our Neutral recommendation on
First Horizon National Corp.
) based on its fundamentals and the current operating
First Horizon returned to profit in the third quarter of 2012 by
reporting earnings per share of 10 cents, after reporting a loss
in the prior quarter. However, the third quarter results included
the negative impact of 7 cents per share from regulatory
guidelines issued of late on consumer loans.
Excluding the negative impact, the company earned 17 cents per
share, which slightly missed the Zacks Consensus Estimate of 18
cents per share. While the pressure on revenue growth continued,
expenses were down both sequentially and year over year, which
Revenue came in at $337.0 million, slightly below the Zacks
Consensus Estimate of $339 million. The revenue figure advanced
2% sequentially but fell 15% year over year.
First Horizon's endeavor to lower its exposure to problem loans
is impressive. It is also aiming at controlling costs and
improving long-term profitability by focusing on growing its core
Tennessee banking franchise, which would augur well going
Management remains focused on enhancing productivity and expects
to achieve its annualized consolidated expense goal of
approximately $1 billion by the end of 2012, a year ahead of its
initial target. This represents a 25-30% reduction from the
2010 level. Going forward, we expect the measures to improve
operating efficiencies. Moreover, share buybacks boost investors'
confidence in the stock.
Yet, First Horizon continues to experience a shrinking revenue
base, with both interest income and fee income remaining
restricted. Given the challenging economic environment and our
outlook for a slow and long economic recovery, we expect top-line
growth to remain limited in the near future.
Additionally, the company's net interest margin is likely to
decline slightly over the next few quarters as interest rates are
expected to remain at historically low levels, which will result
in continued pressure on reinvestment yields in the loan and
securities portfolio. Moreover, with respect to loan, the company
is witnessing considerable competition, including pricing and
Therefore, we believe that the risk-reward profile for First
Horizon is balanced and as a result, have retained the company's
Neutral recommendation. In addition, First Horizon currently
retains its Zacks #3 Rank, which translates into a short-term
Hold rating. One of its closest peers,
Cardinal Financial Corp.
) also has a Zacks #3 Rank.
CARDINAL FINL (CFNL): Free Stock Analysis
FIRST HRZN NATL (FHN): Free Stock Analysis
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