First Horizon's Earnings: Navigating Crosscurrents with Resilience and Value

First Horizon (FHN) has emerged as a regional banking standout in a sector grappling with mixed signals. While peers like FB Financial (FBK) face integration challenges and efficiency headwinds, FHN's Q2 2025 results reveal a nuanced story: a slight EPS miss but a $1.28 billion revenue beat that underscores its operational resilience. With a forward P/E of 11.65 and an average analyst price target of $23.75, the stock presents a compelling opportunity for investors willing to parse through the noise.

Revenue Resilience Amid Sector Challenges

FHN's Q2 2025 revenue surged 54.3% above consensus estimates ($832.95M), reaching $1.28B. While the $0.36 EPS fell $0.01 short of expectations, this miss pales against the top-line outperformance. Historically, FHN has shown an ability to beat EPS estimates 60% of the time, with Q1 2025 already delivering a 5.3% EPS beat. Analysts, however, have grown cautious: EPS estimates for 2025 have been trimmed by 1.7% over the past month, reflecting broader sector concerns like rising nonperforming assets (NPAs).

Yet FHN's net interest margin (NIM) expanded to 3.42% in Q1, driven by lower deposit costs—a trend likely sustained if the Fed halts rate hikes. This $20M expense cut (excluding deferred compensation) and $360M stock repurchase further highlight management's discipline.

Valuation: A Discounted Play in a Premium Sector

FHN trades at a 27% discount to FB Financial's forward P/E (15.91) and a 37% discount to JPMorgan's 18.4. Even within its peer group, FHN's valuation is compelling:
- Truist Financial (TFC): 11.73x forward P/E
- Zions Bancorp (ZION): 11.12x trailing P/E
- Regional bank averages: 12.5x forward P/E

The $23.75 average price target implies 21% upside from current levels ($19.52). This gap suggests the market has yet to fully price in FHN's $81.5B asset base and 10.9% CET1 ratio, which rank among the strongest in the sector.

Why FHN Outperforms FB Financial's Struggles

FBK's merger with Southern States Bancshares—a $36.24/share deal—has delivered mixed results. While synergies could lower its 60.9% efficiency ratio over time, Q2 execution remains uncertain. FBK's $0.88 EPS guidance faces headwinds from IT integration costs and deposit attrition, contrasting FHN's smoother trajectory.

FHN's lower NPAs growth (up 7.8% vs. FBK's 14%) and stronger capital position (CET1 vs. FBK's 10.3%) position it to capitalize on lending opportunities if economic conditions stabilize.

Catalysts for Growth: NIM Stability and Cost Control

• Net Interest Margin (NIM): FHN's Q1 NIM expansion to 3.42% suggests it can outperform peers in a flattening yield curve.
• Cost Management: The $20M expense cut in Q1 hints at operational leverage, which could offset loan growth headwinds.
• Share Buybacks: $360M repurchased in Q1 reduces shares outstanding, boosting EPS accretion.

The July 16 earnings call will be critical. Management's commentary on Q3 guidance, NIM trends, and NPA mitigation strategies could drive multiple expansion.

Investment Thesis: Buy the Dip, Watch for Catalysts

Bull Case: FHN meets or exceeds its $0.42 2025 EPS estimate (up 6.16% vs. 2024). The stock rallies to the $23.75 target on NIM stability and peer outperformance.

Bear Case: Rising NPAs or a Fed surprise triggers sector-wide rotation. FHN's Zacks Rank #3 (neutral) reflects this risk.

Final Call: Buy with a 12-Month Target of $23.75

FHN's 11.8% YTD outperformance, conservative balance sheet, and valuation discounts make it a sector darling in an uneven environment. Investors should accumulate positions ahead of the Q3 earnings season, targeting dips below $20. Risks include NPAs and macro uncertainty, but FHN's fundamentals suggest it's better positioned than peers to navigate these headwinds.

Trade Idea:
- Entry Point: $19.50 (current price)
- Target: $23.75 (average analyst PT)
- Stop-Loss: $17.50 (10% below entry)

Disclosure: Analysis is based on public data; individual circumstances may vary. Consult a financial advisor before investing.