First Horizon National Corporation (FHN) is scheduled to report third-quarter 2014 results before the opening bell on Friday, Oct 17.
Last quarter, First Horizon delivered a positive earnings surprise of 25.0%, driven by prudent expense management. It marked the third consecutive earnings beat by the company.
Will First Horizon be able to keep the earnings streak alive after combating the challenges that the industry witnessed during the quarter? Let’s see what factors might have influenced the earnings report this time around.
Factors to Influence Q3 Results
Both interest income and non-interest income should decline in the quarter. Mortgage banking trading securities income, which is witnessing a declining trend, should put downward pressure on interest income. On the other hand, a persistent fall in income generated from capital markets should bring the non-interest income down during the quarter.
Along with these, macro issues, a dismal mortgage market, weak loan growth, a persistently low interest rate environment, which is putting pressure on net interest margin (NIM), and litigation costs are likely to keep First Horizon’s top line under strain. Management expects NIM in the range of 2.90–2.95% for the second half of 2014.
However, First Horizon’s cost-control measures have been showing positive results for the past several quarters. This declining trend in operating expenses is expected to continue this quarter as well, supporting the bottom line. Management anticipates expenses to be nearly $850 million for the rest of the year, lower than $900 million estimated at the beginning of the year.
Activities of First Horizon during the quarter were inadequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate for the quarter remained stable at 17 cents per share over the last 7 days.
Earnings Whispers
Our proven model does not conclusively show that First Horizon is likely to beat the Zacks Consensus Estimate in the third quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or at least 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, this is not the case here as elaborated below.
Zacks ESP: The Earnings ESP for First Horizon is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 17 cents per share.
Zacks Rank: First Horizon’s Zacks Rank #3 (Hold) increases the predictive power of ESP. However, we also need to have a positive ESP to be confident of an earnings surprise call.
Stocks That Warrant a Look
First Horizon is not the only firm looking up this earnings season. We also expect earnings beats from other companies in this industry:
World Acceptance Corp. (WRLD) has an Earnings ESP of +1.38% and carries a Zacks Rank #2. The company is slated to release results on Oct 22.
Arlington Asset Investment Corp. (AI) has an Earnings ESP of +7.34% and sports a Zacks Rank #1. It is scheduled to report results on Oct 27.
CIT Group Inc. (CIT) has an Earnings ESP of +3.37% and a Zacks Rank #3. It is slated to report results on Oct 28.
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