First Horizon’s SWOT analysis: regional bank stock faces growth opportunities

First Horizon Corporation (NYSE:FHN), a prominent financial services company with a market capitalization of $10.03 billion operating in the Southeast region of the United States, has been the subject of recent analyst scrutiny. As the banking sector navigates through a period of economic uncertainty, First Horizon has demonstrated resilience and strategic focus, prompting a closer examination of its position in the market. According to InvestingPro analysis, the company maintains a "GOOD" financial health score of 2.54, suggesting solid fundamental strength.

Company Overview

First Horizon Corporation has established itself as a solid franchise in the Southeast, with a growing emphasis on technology and fee business expansion. The company’s operations span across various banking and financial services, catering to a diverse customer base within its regional footprint.

Financial Performance

In the first quarter of 2025, First Horizon reported strong results, with core earnings per share (EPS) of $0.42. This performance was primarily attributed to effective expense control and margin expansion, showcasing the company’s ability to manage costs while improving profitability. InvestingPro data reveals the company trades at a P/E ratio of 13.72 and currently appears undervalued based on comprehensive Fair Value analysis. For detailed valuation metrics and additional insights, check our undervalued stocks list.

Analysts project continued growth in earnings, with estimated EPS for the fiscal year 2025 ranging from $1.54 to $1.67, and forecasts for 2026 reaching up to $1.96. These projections reflect confidence in First Horizon’s ability to execute its strategic initiatives and capitalize on market opportunities.

Strategic Initiatives

First Horizon’s management has articulated a clear focus on driving growth through strategic investments, particularly in technology and fee-based businesses. This pivot towards innovation and diversification of revenue streams is seen as a key factor in the company’s future success. InvestingPro Tips highlight that management has been aggressively buying back shares, and the company has maintained dividend payments for 15 consecutive years, currently offering a 3.09% yield. Access 6 more exclusive ProTips and comprehensive analysis with an InvestingPro subscription.

The corporation has also indicated its intention to engage in share buybacks, which analysts interpret as a sign of confidence in the company’s financial health and future prospects. However, this strategy is expected to lead to a decline in the Common Equity Tier 1 (CET1) ratio by 2025, as capital is returned to shareholders.

Market Position

As a regional bank, First Horizon faces both opportunities and challenges in its competitive landscape. The company’s strong presence in the Southeast provides a solid foundation for growth, with revenue increasing by 3.43% in the last twelve months. While it must contend with larger national banks and nimble fintech competitors, the company’s robust financial position and strategic initiatives position it well in the market. Discover more detailed competitive analysis and industry insights through our comprehensive Pro Research Report, available exclusively on InvestingPro.

Analysts note that First Horizon’s management has expressed optimism about the potential for broader bank mergers and acquisitions (M&A) in the sector. This sentiment suggests that the company may be positioning itself to take advantage of consolidation opportunities or to enhance its market position through strategic partnerships.

Future Outlook

Despite acknowledging near-term pressures, First Horizon’s management has maintained a confident stance on future Pre-Provision Net Revenue (PPNR) growth. The company has expressed its ability to achieve its 2025 outlook under various interest rate and macroeconomic scenarios, demonstrating adaptability in the face of economic uncertainties.

The focus on technology and fee business expansion is expected to drive long-term growth, potentially offsetting any headwinds from the broader economic environment. Analysts anticipate positive operating leverage throughout 2025, indicating ongoing efficiency improvements that could lead to increased profitability.

Bear Case

How might economic uncertainties impact FHN’s performance?

First Horizon, like many regional banks, is susceptible to macroeconomic fluctuations. Economic uncertainties could lead to increased loan loss provisions, reduced consumer spending, and potential interest rate volatility. These factors may pressure the bank’s net interest margins and overall profitability. Additionally, the company has increased its Allowance for Credit Losses (ACL) and set higher capital targets, reflecting a cautious approach to potential economic headwinds. While these measures provide a buffer against downturns, they could also limit short-term growth opportunities and impact shareholder returns.

What risks does FHN face in its technology and fee business expansion?

As First Horizon pivots towards technology and fee-based businesses, it faces execution risks associated with new initiatives. The banking technology landscape is highly competitive, with fintech companies and larger banks investing heavily in digital transformation. First Horizon must allocate resources effectively to develop or acquire relevant technologies while ensuring seamless integration with existing systems. There’s also the risk of cybersecurity threats and regulatory challenges associated with new financial products and services. If the company fails to keep pace with technological advancements or misallocates resources, it could lose market share and struggle to attract tech-savvy customers.

Bull Case

How could FHN’s strategic investments drive growth?

First Horizon’s focus on strategic investments in technology and fee-based businesses positions the company for potential long-term growth. By enhancing its digital capabilities, the bank can improve customer experience, streamline operations, and reduce costs. This could lead to increased customer retention, acquisition of new clients, and expansion into new market segments. The emphasis on fee-based businesses may also diversify revenue streams, reducing reliance on interest income and potentially stabilizing earnings across different economic cycles. If executed successfully, these investments could differentiate First Horizon from competitors and drive sustainable growth in both market share and profitability.

What potential benefits could arise from broader bank M&A?

The management’s optimism about broader bank M&A activities presents several opportunities for First Horizon. As a regional player with a strong balance sheet, the company could be well-positioned to acquire smaller banks or merge with similarly sized institutions. Such consolidation could lead to increased market share, expanded geographic footprint, and enhanced economies of scale. M&A activities could also provide access to new technologies, customer bases, and talent pools. Furthermore, in a consolidating market, First Horizon itself could become an attractive acquisition target for larger banks looking to expand their presence in the Southeast, potentially creating value for shareholders through a premium valuation.

SWOT Analysis

Strengths:

• Strong regional presence in the Southeast
• Effective expense control and margin expansion
• Management confidence in meeting long-term goals
• Solid franchise with early-stage growth pivot

Weaknesses:

• Declining CET1 ratio due to share buybacks
• Near-term economic pressures
• Potential execution risks in technology expansion

Opportunities:

• Technology and fee business expansion
• Potential for bank M&A activities
• Strategic investments driving long-term growth
• Positive operating leverage improvements

Threats:

• Uncertain macroeconomic environment
• Competitive pressures in the banking sector
• Regulatory challenges in new financial products
• Cybersecurity risks associated with digital expansion

Analysts Targets

• Truist Securities: Hold (May 12th, 2025)
• RBC Capital Markets: Outperform, $22.00 (April 17th, 2025)
• Barclays (LON:BARC): Overweight, $23.00 (April 17th, 2025)
• Barclays: Overweight, $25.00 (January 17th, 2025)
• RBC Capital Markets: Outperform, $23.00 (December 11th, 2024)

This analysis is based on information available up to May 22, 2025.

InvestingPro: Smarter Decisions, Better Returns

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