First Horizon's Q4: Is the "Buy the Rumor" Trade Priced In?

The setup for First Horizon's fourth-quarter report is a classic case of expectations running ahead of reality. The market has already baked in a significant amount of positive news, setting a high bar for management to clear.

The consensus baseline is clear. Analysts expect the bank to report earnings of $0.46 per share, a 7% year-over-year increase, on revenue of roughly $862.8 million, up 18%. More importantly, the stock's performance tells the real story of what's priced in. First Horizon shares have rallied over 22% year-to-date in 2025, a move that reflects strong investor sentiment and likely incorporates the positive momentum from recent quarters.

This sets up a delicate dynamic. A beat on the Q4 numbers could be a "buy the rumor" trade that's already been executed. The real risk isn't a miss on the headline figures-it's a guidance reset. The company's strategic pivot from potential acquisition target to active acquirer has been a key narrative driver. CEO Bryan Jordan has recently signaled increasing confidence in integrating a merger, framing 2026 as a potential year for deal activity. If management's outlook for the coming year is perceived as conservative relative to these stated ambitions, it could trigger a sharp reassessment. The market has priced in growth and strategic action; a guidance that doesn't match that energy would close the expectation gap with a negative pop.

Financial Drivers: Quality of the Beat

The core business delivered a solid beat, but the quality of the numbers is what matters for the long-term thesis. First Horizon's net interest income came in at $675 million, topping forecasts. This was driven by a 15 basis point increase in the net interest margin to 3.55%, a clear sign of pricing power and efficient asset-liability management. Separately, core fee income grew 13.2%, showing strength in the bank's operational capabilities beyond its loan book. These are the fundamentals that should support a valuation, independent of any M&A speculation.

Yet, the market's reaction to the earnings call suggests these operational wins were overshadowed by a guidance reset. The stock dropped over 9% on comments about M&A, a classic "sell the news" event where the strategic narrative took a hit. This creates a tension: the underlying financials are improving, but the forward view on deal activity appears to have been downgraded from the bullish expectations priced in earlier.

The stock's technical setup reinforces this narrative. With a 52-week high of $24.91 only 3.4% above the current price, there's limited upside from recent highs. This tight range indicates the market has already digested the positive operational momentum. For the "buy the rumor" trade to continue, the company needs to show that its operational beat can fuel a new, higher trajectory-something the recent guidance may have put in doubt. The beat was real, but the market is now asking if it's enough to justify the next leg up.

The M&A Catalyst: From Target to Acquirer

The strategic pivot is the core of the new investment thesis. First Horizon is no longer just a potential acquisition target. CEO Bryan Jordan's recent comments have explicitly framed the bank as an active acquirer, signaling increasing confidence in integrating a well-structured merger with a strong cultural fit in our existing footprint, if such an opportunity arises in 2026 or beyond. This is a direct shift from the narrative of being sold, which was the dominant expectation for much of 2024 and early 2025.

Analysts have already adjusted their models to reflect this new reality. The consensus is that the sale story is now unlikely for at least 12-18 months. This has tangible financial consequences: firms like Wells Fargo have removed acquisition premiums from their price targets, acknowledging the catalyst has fundamentally changed. The market has priced in a period of strategic inaction on the sale front, but it has not yet priced in the new promise of growth through acquisition.

That creates a clear expectation gap. The stock's forward trajectory depends entirely on management delivering on this new promise. Yet, the current financial outlook lags. Analysts project 2026 earnings per share growth of 10%, which sits below the peer median growth rate of 14%. In other words, the market is already expecting a modest beat on earnings, but it needs a "beat and raise" on the strategic narrative to justify a higher valuation. The catalyst has shifted from a potential takeover premium to the execution risk of organic and inorganic growth. For the "buy the rumor" trade to continue, management must now show it can close this gap by turning its 2026 ambition into a credible, higher-growth plan.

Catalysts and Risks: What to Watch

The investment thesis now hinges on a few forward-looking signals. The key catalyst is clear: management's 2026 guidance must provide a credible path to earnings growth that justifies the stock's valuation. The market has already priced in a modest beat on the headline numbers, with consensus expecting $0.46 per share and revenue of $862.8 million. The real test is whether the outlook for the coming year can close the expectation gap and support a higher multiple.

The major risk is a classic "sell the news" reaction. Given the stock's 22% year-to-date run-up, even a clean beat on Q4 results could trigger a negative move if the forward view is perceived as neutral or conservative. The recent 9% drop on M&A comments shows how sensitive the stock is to guidance resets. If the 2026 EPS growth forecast of 10% fails to exceed the peer median of 14%, it will likely be seen as underwhelming, especially after the strategic pivot narrative.

Another watch item is capital allocation. The company holds a $300 million share buyback authorization, which signals a commitment to returning capital. Any update on the pace of repurchases will provide insight into management's confidence in the stock's valuation and its priorities for deploying excess cash. This is a tangible signal of where capital is being allocated, which matters when growth is the primary driver.

The bottom line is about expectation arbitrage. The stock's recent technical setup-a 52-week high just 3.4% above the current price-indicates limited upside from recent highs. For the "buy the rumor" trade to continue, the company must deliver a "beat and raise" on the strategic narrative, not just the quarterly numbers. The catalyst is execution; the risk is that the stock's strong run-up has already priced in too much optimism.