First Horizon National: A Disconnect Between Earnings Revisions and Undervalued Potential

First Horizon National (FHN) faces a critical inflection point ahead of its July 16 Q2 2025 earnings release. Despite a downward revision to its earnings estimates and a bearish Zacks Rank #4, the bank's revenue growth has outperformed expectations, and its valuation lags behind peers. This divergence creates a compelling opportunity for investors to position ahead of what could be a catalyst-driven revaluation.

The Earnings Dilemma: Growth vs. Revisions

Analysts project FHN's Q2 EPS of $0.41, a 13.9% year-over-year increase. However, over the past 30 days, consensus estimates have been trimmed by 1.7%, reflecting growing skepticism about near-term profitability. This caution contrasts sharply with FHN's Q2 revenue surge, which beat estimates by 54.3%, reaching $1.28 billion. The disconnect stems from sector-wide challenges: while non-interest income (up to $189.18 million) and net interest income (NII) growth (+1.2%) powered top-line momentum, service charges and mortgage banking revenue declined.

The underscores the market's focus on near-term headwinds rather than the bank's operational resilience.

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Valuation: A Discounted Play in a Premium Sector

FHN trades at a forward P/E of 11.65, nearly 27% below Pinnacle Financial's 15.91 and 37% below JPMorgan's 18.4. Analysts' average price target of $23.75 implies a 21% upside from current levels, suggesting the market underappreciates FHN's fundamentals. Key metrics include:
- A robust CET1 capital ratio of 10.9%, among the strongest in its peer group.
- A $360 million stock repurchase program, signaling confidence in its balance sheet.
- A $81.5 billion asset base, which positions FHN to capitalize on lending opportunities if economic conditions stabilize.

The bank's efficiency ratio improved to 60.5% from 61.4% in Q2 2024, reflecting cost discipline. Meanwhile, net interest margin (NIM) held steady at 3.4%, a positive sign as peers face margin compression.

Navigating the Zacks Rank #4 Contradiction

The Zacks Rank #4 (Sell) stems from short-term concerns, including rising nonperforming assets (NPAs) projected to hit $629 million—a 8% increase from Q2 2024. However, FHN's NPA growth lags peers like Pinnacle Financial, which faces integration challenges and a higher NPA trajectory.

Investors should also consider the Zacks Earnings ESP model's +2.94% surprise potential, which hints at FHN's ability to exceed revised estimates. Historically, the bank has beaten EPS expectations in three of the last four quarters, including a **+5% surprise in Q1.

Risks and Catalysts

• Upside Catalysts: A Q3 guidance beat, sustained NIM stability, and a lower-than-expected NPA tally post-earnings could trigger a re-rating.
• Downside Risks: Further Fed rate hikes or a sudden spike in NPAs could pressure the stock.

Investment Thesis: Buy the Dip Ahead of Earnings

FHN's valuation discount and strong revenue momentum suggest it's undervalued relative to peers. While near-term risks exist, the bank's balance sheet strength and cost controls position it to navigate challenges better than many regional peers.

Historical data reveals that FHN's stock has shown a positive reaction to earnings releases over the past three years. With a 3-day win rate of 57.14%, 10-day of 64.29%, and a peak return of 2.51% on day 24 post-earnings, the stock has consistently delivered gains in the period following such events. This historical performance reinforces the potential upside ahead of the upcoming July 16 report.

Actionable Advice:
- Buy: Accumulate positions ahead of the July 16 earnings release, targeting dips below $20.
- Hold: If near-term volatility is a concern, wait for post-earnings clarity.

The stock's 43.1% undervaluation relative to its fair value estimate and the Zacks ESP model's positive surprise potential make this a high-conviction opportunity. For income-focused investors, the 2.73% dividend yield (with a conservative 42% payout ratio) adds further appeal.

In a sector where caution reigns, FHN's resilience and valuation edge could finally convince skeptics—and investors—alike.

Note: Always conduct your own research or consult a financial advisor before making investment decisions.