First Horizon's M&A Stumbles: Valuation Risks and Investor Skepticism in a Fractured Regional Banking Sector

First Horizon National Corporation (FHN) finds itself at a crossroads in 2025, as its cautious M&A strategy clashes with a regional banking sector grappling with macroeconomic headwinds and shifting investor sentiment. While management touted a 10.75% CET1 capital ratio and mid-single-digit loan growth as pillars of its strategy in its earnings call, the company's valuation metrics and market reception tell a more complex story.

Valuation Risks: A Delicate Balancing Act

First Horizon's trailing price-to-earnings (P/E) ratio of 13.05 as of October 14, 2025, places it above both its regional banking peers (13.1x average) and the broader U.S. banks industry (11.7x), per Simply Wall St's valuation. This premium valuation, however, is juxtaposed with a price-to-book (P/B) ratio of 1.32x, per a Banking Dive article, which exceeds the 1.13–1.16 range typical for regional banks, according to Simply Wall St. Analysts argue this discrepancy reflects a disconnect between management's optimism and market realities, particularly as First Horizon's stock trades at a 20% discount to its estimated fair value of $36.83, per Simply Wall St.

The company's enterprise value/EBIT ratio of 8.58x, noted by Banking Dive, further underscores its precarious position. While this metric appears attractive on the surface, it lags behind the 9.8x average for regional banks, suggesting investors are discounting First Horizon's earnings potential amid concerns over credit risks in consumer auto loans and commercial real estate (CRE), according to a Daily Researcher analysis. This is particularly evident in the stock's post-earnings volatility following its Q3 2025 beat, where mixed signals about capital deployment and growth sustainability left investors uncertain, as noted in the earnings call.

Investor Sentiment: A Sector in Retreat

The regional banking sector's struggles are not unique to First Horizon. Elevated credit risks, regulatory shifts, and a surge in insider selling have dampened sentiment, with regional bank ETFs like KRE and KBWB declining year-to-date, according to Daily Researcher. Major banks like JPMorgan Chase and Citigroup have outperformed, leveraging robust trading revenues and investment banking rebounds, while regional players face scrutiny over their ability to navigate a potential economic slowdown.

First Horizon's position as a potential takeover target, previously noted by Banking Dive, adds another layer of complexity. While its $17.03 book value per share has been cited by Daily Researcher and its regional footprint make it an attractive candidate, the lack of concrete M&A activity since Q3 2025 has fueled skepticism. In contrast, the Fifth Third–Comerica merger-a $10.9 billion all-stock deal-has redefined consolidation trends in the sector, leaving First Horizon to play catch-up in a rapidly evolving landscape.

Strategic Outlook: Navigating Uncertainty

First Horizon's management has signaled openness to 2026 M&A opportunities, as discussed on the earnings call, but the path forward is fraught with challenges. The company must balance its 10.75% CET1 capital ratio with the need to deploy capital effectively, all while competing with peers who are leveraging technology-driven strategies and Generative AI to streamline due diligence, per Daily Researcher. The broader M&A environment, though resilient (up 29% year-over-year in H1 2025), remains sensitive to U.S. tariff policies and geopolitical tensions, according to Banking Dive.

For investors, the key question is whether First Horizon can transform its cautious approach into actionable value creation. The company's undervaluation relative to fair value and its strategic positioning in high-growth markets offer hope, but these must be weighed against the sector's systemic vulnerabilities.

Conclusion

First Horizon's M&A strategy in 2025 is a microcosm of the broader regional banking sector's struggles: a tug-of-war between strategic ambition and economic reality. While valuation metrics suggest untapped potential, investor sentiment remains cautious, reflecting deep-seated concerns about credit risks and capital allocation. As the company eyes 2026 for strategic acquisitions, its ability to align with macroeconomic trends and demonstrate operational resilience will be critical to unlocking shareholder value.