FHN or CFR: Which Is the Better Value Stock Right Now?

For a value investor, the central question is always about price relative to intrinsic worth. When comparing First Horizon National (FHN) and Cullen/Frost Bankers (CFR), the numbers point decisively toward one offering a wider margin of safety. The valuation metrics tell a clear story of which bank is better priced for its growth prospects.

The forward P/E ratio is a fundamental starting point. FHN trades at 12.39, while CFR commands a higher multiple of 13.71. This difference is amplified when we consider the P/B ratio, a key metric for financial institutions. FHN's market value is just 1.41 times its book value, whereas CFR's is 2 times its book value. In other words, you are paying a premium for CFR's tangible assets.

The PEG ratio, which adjusts the P/E for expected earnings growth, reveals the most telling contrast. FHN's PEG ratio of 0.88 suggests its price already reflects a reasonable growth path, potentially even undervaluing future expansion. CFR's PEG ratio of 3.14 implies its current price embeds a much more optimistic growth story, leaving less room for error. For a value investor, a PEG below 1.0 is often seen as a sign that growth is being better priced, which is exactly the case with FHN.

This difference is captured in the Zacks Value grades. FHN holds a Value grade of B, indicating a solid value profile. CFR, by comparison, has a Value grade of C, which signals a more modest value proposition. The grade reflects a combination of the metrics discussed, with FHN's lower multiples and more favorable PEG rating earning it the edge.

The bottom line is that FHN presents a superior value proposition based on these core metrics. It trades at a discount to its book value, commands a lower forward P/E, and, most importantly, its price appears to better account for future growth. For an investor seeking a margin of safety, the numbers favor First Horizon National.

Assessing the Business: Financial Performance and Moat

The valuation numbers tell us which bank is cheaper, but the business story reveals which one is stronger. For a value investor, durable earnings power and a wide moat are more important than a low P/E. Here, the performance metrics show two different models of success.

Cullen/Frost Bankers demonstrates exceptional operational efficiency and a clear growth trajectory. Its third-quarter net income of $172.7 million represented a robust 19.2% year-over-year increase, with earnings per share of $2.67 comfortably beating estimates. More telling is the quality of that profit: the bank's trailing twelve-month net profit margin has stepped up to 28.7%, a notable improvement from 27.1% last year. This expansion signals strong pricing power and cost discipline. The growth engine is also well-diversified, with net interest income remaining the core driver at 78.7% of revenue, but non-interest income growing faster. Management's confidence is evident in its raised full-year net interest income guidance to 7-8% growth, underpinned by steady loan growth of 6.8% to $21.5 billion in the quarter.

First Horizon's performance, while solid, reflects a different scale and a more recent turnaround. Its third-quarter adjusted net income of $263 million or $0.51 per share showed sequential growth from the prior quarter, a positive sign of momentum. However, the absolute dollar figure is smaller than CFR's, and the growth rate is not yet at the same pace. The bank's focus appears to be on stabilizing and rebuilding, as evidenced by its emphasis on credit quality and disciplined execution. The key difference is one of maturity and growth stage: CFR is compounding at a high rate in a concentrated Texas market, while FHN is demonstrating that its strategic reset is yielding positive results after a period of challenges.

Viewed through a value lens, CFR's higher margin and faster growth suggest a wider economic moat, likely built on deep local relationships and a strong brand in its core region. This allows it to generate more profit per dollar of revenue and reinvest it at high returns. FHN's path is one of recovery and execution; its earnings power is improving, but it is not yet at the same level of operational efficiency or growth acceleration as its peer. For long-term compounding, the quality of earnings matters as much as the quantity. Here, the evidence points to Cullen/Frost Bankers as the more durable business model.

Valuation and Intrinsic Value

The tension between FHN's attractive price and CFR's superior business quality defines this investment choice. On pure valuation, First Horizon offers a clear margin of safety. The stock trades at a modest 2.7% discount to its fair value estimate, a gap that, while not massive, provides a buffer against error. This suggests the market is pricing in a solid recovery, but not yet the full potential of its turnaround. In contrast, Cullen/Frost Bankers commands a premium, with its higher returns and margins justifying a richer multiple, but leaving less room for missteps.

CFR's underlying business is undeniably stronger. Its Return on Average Common Equity (ROACE) of 16.72% and a trailing twelve-month net profit margin of 28.7% demonstrate a wide economic moat built on operational efficiency and pricing power in its concentrated Texas market. This quality generates more durable earnings per dollar of capital, a hallmark of a compounding machine. Yet, this superior business quality is already reflected in its valuation, making it a more expensive bet on continued excellence.

The broader regional bank sector faces headwinds, but 2026 could bring tailwinds that benefit both. Analysts point to a steeper yield curve and a loosened regulatory environment as catalysts that could support net interest margins and loan growth. This backdrop provides a supportive floor for the entire group, but it does not change the relative value proposition. The steeper curve could help FHN's net interest income, but CFR's already high ROACE and margin offer a more direct path to compounding returns.

The bottom line is a classic value investor's dilemma. FHN offers a better price for its current earnings power and a wider margin of safety. CFR offers a better business, but at a higher cost. For a disciplined investor, the margin of safety is paramount. If the market is correct in pricing FHN near fair value, the stock's modest discount is a reasonable entry point. If CFR's superior quality is underappreciated, its premium may be justified. The choice hinges on which risk you are more willing to accept: the execution risk of a turnaround at a discount, or the valuation risk of paying up for proven excellence.

Catalysts and Risks to Watch

The investment thesis for both banks now hinges on forward-looking catalysts and the risks that could challenge their respective paths. For a value investor, the key is to identify what needs to go right to justify the current price, and what could go wrong to erode the margin of safety.

For First Horizon, the primary risk is that its recent momentum has already priced in much of its growth story. The stock has shown strong returns, with a 7.95% one-month gain and a 23.58% one-year total shareholder return. This appreciation has narrowed the valuation gap, with the stock now trading at a modest 2.7% discount to its fair value estimate. The risk is that further upside is limited unless the bank can consistently exceed the already-optimistic assumptions embedded in its rising fair value. Execution risks around credit quality and fee income remain, but the bigger concern is that the market has become convinced of the turnaround, leaving little room for error if the pace of improvement slows.

Cullen/Frost Bankers faces a different watchpoint: whether its exceptional cost discipline can hold as it expands. The bank's 19.2% year-over-year net income growth and 28.7% trailing net profit margin are impressive, but they are built on a foundation of operational efficiency. Management's confidence is evident in its raised guidance, but the bank's non-interest expenses rose 9.0% in the quarter. As CFR grows its loan book and service base, the pressure to invest in infrastructure and personnel could begin to eat into its high-margin earnings. The key will be maintaining that 28.7% margin while scaling, a classic challenge for high-quality businesses.

Both banks are fundamentally sensitive to the same macro drivers: interest rates and loan growth. These factors directly feed their core profit engine, net interest income. A steeper yield curve and a loosened regulatory environment are the broad sector tailwinds that could benefit both. A steeper curve improves the spread between what the bank pays for deposits and earns on loans, while regulatory relief could free up capital for lending and reduce compliance costs. These conditions, as noted by KBW analysts, create a supportive backdrop for the entire regional banking group in 2026.

The bottom line is that the catalysts are external and shared, while the risks are internal and distinct. FHN must prove its recovery is durable beyond the current price, while CFR must prove its high-margin model is scalable. For the patient investor, watching these factors will determine whether the current valuation offers a true margin of safety or merely a fair price for a good business.