We have upgraded our recommendation on First Horizon National Corp. (FHN) to Neutral following a detailed analysis of the company’s first quarter 2011 earnings results, its strengths and weaknesses in light of the current economic environment.
First Horizon’s earnings came in at 15 cents per share, well ahead of the Zacks Consensus Estimate of 4 cents per share. Results also compared quite favorably with a loss of 20 cents per share in the prior quarter and a loss of 12 cents per share in the year-ago quarter.
The stellar earnings came on the back of a drop in loan loss provisions and lower expenses, partially offset by lower-than-expected revenue due to a drop in net interest income. Sluggish economic recovery remains an overhang on the company's results and loan demand continues to be weak.
First Horizon has executed several strategic repositioning efforts to improve long-term profitability.It has implemented several capital bolstering initiatives, which have strengthened its capital base. Management also expects to improve its operating efficiency and deliver $100 million to $125 million in annual cost savings by 2012.
Such efforts of First Horizonto reduce its exposure to problem loans, control costs, boostcapital levels and improve long-term profitability by focusing on growing its core Tennessee banking franchise are encouraging. In an effort to improve its focus on banking and capital markets, recently First Horizon also shed its insurance unit, First Horizon Insurance Inc. to insurer Brown & Brown Inc. (BRO).
Yet, though the wind-down of the non-strategic part of the loan portfolio augurs well, it will remain a drag on the company's earnings going forward. Shrinking revenue base and regulatory issues remain our concerns. Given the challenging economic environment and our expectation of a slow and long economic recovery, we expect the top line to remain limited in the near future.
Additionally, First Horizon currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.
BROWN & BROWN (BRO): Free Stock Analysis Report
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