Over the past six months, First Horizon’s stock price fell to $22.06. Shareholders have lost 5.1% of their capital, which is disappointing considering the S&P 500 has climbed by 1%. This might have investors contemplating their next move.
Is there a buying opportunity in First Horizon, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Is First Horizon Not Exciting?
Even with the cheaper entry price, we don't have much confidence in First Horizon. Here are three reasons there are better opportunities than FHN and a stock we'd rather own.
1. Net Interest Income Points to Soft Demand
While bank generate revenue from multiple sources, investors view net interest income as a cornerstone - its predictable, recurring characteristics stand in sharp contrast to the volatility of one-time fees.
First Horizon’s net interest income has grown at a 9.5% annualized rate over the last five years, slightly worse than the broader banking industry. Its growth was driven by both an increase in its outstanding loans and net interest margin, which represents how much a bank earns in relation to its outstanding loan book.
2. Projected Net Interest Income Growth Is Slim
Forecasted net interest income by Wall Street analysts signals a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect First Horizon’s net interest income to rise by 4%.
3. Projected TBVPS Growth Is Slim
Tangible book value per share (TBVPS) growth is driven by a bank’s ability to earn more than its cost of capital through lending activities while maintaining a strong balance sheet.
Over the next 12 months, Consensus estimates call for First Horizon’s TBVPS to grow by 8% to $15.33, paltry growth rate.
Final Judgment
First Horizon’s business quality ultimately falls short of our standards. After the recent drawdown, the stock trades at 1.2× forward P/B (or $22.06 per share). This valuation multiple is fair, but we don’t have much faith in the company. We're pretty confident there are superior stocks to buy right now. We’d suggest looking at a fast-growing restaurant franchise with an A+ ranch dressing sauce.
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