Jefferson Harralson, Analyst with Keefe, Bruyette & Woods, says First Horizon National Corp (FHN) is currently under-earning, is asset-sensitive and its margin is low as the company has kept the asset short while they wait for rates to go up. Harralson says First Horizon is his favorite stock pick at the moment.
“It’s relatively cheap on tangible book, and it has a lot of earnings leverage that are going to be exercised over the next year or two that should have it make a lot more money,” he says.
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Harralson says First Horizon has high legal expenses because they have done settlements with Fannie (FNMA) and Freddie (FMCC), but he says the company is one settlement away from finalizing those legal expenses.
“So you layer in the cost savings, the risk reduction and the potential for higher rates to expand this margin out, and this company that’s making maybe $0.80 a share right now annualized, it could be in that $1.20-plus range once all the things happen; it should happen over the next year or two that helps First Horizon,” he says.
Additionally, Harralson says First Horizon’s bond business has been making significantly less money in the low-rate environment.
“What you have is a business that was earning First Horizon about $0.20 per share per year now earning them about $0.04 or $0.05 per share per year, so some interest rate volatility or some rising rates should be able to help them earn more money in that business too,” he says.
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