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First Horizon Corp. drew praise from Jefferies analyst Casey Haire for its “pragmatic tone” at its investor day just weeks after the mutual termination of its acquisition by TD Bank.
Haire reiterated a buy rating on First Horizon
FHN,
partly because of its potential to deploy excess capital and the option for more potential mergers ahead, he said in a research note published Tuesday.
Meanwhile, Raymond James analyst Michael Rose stuck to his market-perform rating on First Horizon and said the bank “faces the same fundamental challenges currently facing the industry more broadly in the form of net interest margin pressure, slowing loan growth, normalizing credit trends, fee income headwinds, and upward expense pressure to name a few.”
Raymond James and Jefferies analysts both cut their earnings targets for First Horizon in the face of a challenging banking environment.
First Horizon’s stock dropped sharply last month after its merger deal with TD Bank failed.
First Horizon’s management candidly acknowledges a “challenging” macro backdrop as it pursues its path as a standalone company “while also expressing confidence given their attractive Southeast footprint, robust capital position and strong client/talent retention,” Haire said.
With net interest income remaining under pressure and expenses likely to climb, Haire cut his 2023 earnings forecast for First Horizon to $1.54 a share from $1.58 a share and his 2024 profit forecast to $1.51 a share from $1.57 a share.
“Management was vague when asked about excess capital deployment and M&A activity, but we expect [First Horizon] to be active on both fronts in the future,” Haire said.
Although stock buybacks are not currently in place, the bank’s robust capital ratio would allow it to pursue them at some point in the not-too-distant future, Haire said.
“Buybacks are off the table for now given macro uncertainty, but we expect management to improve following more clarity on regulatory reform and/or pulling focus on magnitude of credit normalization,” Haire said.
In terms of more mergers and acquisitions, First Horizon expects industry consolidation to eventually resume.
“M&A will remain part of the strategy (as either a target or acquirer) to defray the regulatory expense burdens with increased scale as it is best to jump across the $100 billion [regulatory] asset threshold vs. growing organically beyond it,” Haire said.
Raymond James’s Rose cut his 2023 earnings outlook for First Horizon to $1.56 a share from $1.75 a share and reduced his 2024 earnings view to $1.40 a share from $1.75 a share.
“We continue to view risk-reward as balanced for now given ongoing questions around customer/talent flight, the scope/magnitude of franchise investment, and its ability to sustainably drive top quartile returns versus,” Rose said.
First Horizon’s stock is up 1.7% on Wednesday. The stock is down 52.5% in 2023, compared with a 28.8% drop by the KBW Nasdaq Bank Index
BKX,
and a 24.7% drop by the SPDR S&P Regional Banking exchange-traded fund
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Also read: First Horizon stock plunges after merger deal with TD Bank is mutually terminated
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