On Thursday, Stephens initiated coverage on First Horizon National (NYSE:FHN) stock with an Overweight rating, citing the bank's strong positioning in the current economic environment.
The firm highlighted First Horizon's asset-sensitive balance sheet and higher capital ratios compared to peers as key advantages in a period of sustained high interest rates.
The new rating comes after First Horizon's previous engagement with TD ended last year. Stephens noted that First Horizon is well-equipped to benefit from its counter-cyclical fee verticals, which contribute to an above-average fee-to-revenue ratio, even during economic downturns. The bank's fee-to-revenue mix is approximately 23% throughout Stephens' forecast period, which is considered robust relative to peers.
In terms of valuation, Stephens pointed out that First Horizon is trading at a 9% discount on price-to-tangible book value (P/TBV) compared to regional and KRX peer medians.
Additionally, the bank is at a 13% discount when adjusted for accumulated other comprehensive income (AOCI), despite projecting a return on tangible common equity (ROTCE) around 12%, which aligns with industry standards.
The Overweight rating implies a positive outlook, with Stephens projecting a 17% increase to its price target for First Horizon. The firm also mentioned the potential of a 50% increase in valuation, to $24 per share, when considering the fundamentals-derived price target in conjunction with the premium from the previous TD takeover bid. This assessment reflects Stephens' confidence in First Horizon's financial fundamentals and its potential for growth.
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