First Horizon Earnings Estimate Scorecard

| About: First Horizon (FHN)
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First Horizon National Corporation (NYSE:FHN) reported first quarter 2010 results on April 16, which was better than the Zacks Consensus Estimate. The company also narrowed its loss from the prior year-quarter.

However, following the earnings announcement, the response from the analysts covering First Horizon has been mixed. While some of the analysts made upward revisions on the back of an improving credit quality, others have revised downward, citing the lack of any top-line growth in the company.

Earnings Report Review

First Horizon’s first quarter loss came in at 9 cents per share, better than the Zacks Consensus Estimate of a loss of 16 cents. The beat was primarily driven by a decrease in loan loss provisions that shrank to $105 million from $135 million in the prior quarter and $300 million in the year-earlier quarter.

However, First Horizon’s top-line results were not impressive. Total revenue fell 2% sequentially and 28% year over year to $428.7 million. Regarding credit quality, though the absolute figures decreased, the ratios increased slightly in the quarter, with loan balances sliding down.

(Read our full coverage on this earnings report: First Horizon Beats, Narrows Loss)

Agreement of Analysts

Of the 22 analysts covering the stock, 8 raised their estimates for full year 2010 while 4 lifted the full year 2011 earnings estimates.

The better-than-expected results and an improvement in credit quality seem to be the driving factor behind the positive estimate revisions. Though still elevated, credit quality measures continued to show improvement, with the company reporting a decline in nonperforming assets, charge-offs and loan loss provisions.

First Horizon has also executed several strategic repositioning efforts to improve long-term profitability by focusing on growing its core Tennessee banking franchise. It has implemented a number of capital bolstering initiatives that helped it to achieve a strong capital base.

Despite these positives, a number of analysts have made downward revisions. A total of 13 analysts lowered their estimates for 2010 and 16 analysts reduced their 2011 estimates.

Such a major downward revision clearly depicts the analysts’ worry about a shrinking revenue base. First Horizon continues to witness a weak demand for its loans and additionally, its fee income stream remains pressurized.

Though the wind-down of the non-strategic part of the loan portfolio augur well, we believe that it will remain a drag on the company’s earnings in the near future. Given the stressed economic environment and our outlook for a slow and protracted economic recovery, we expect the top line to remain restricted in the near future.

As evident, in general, the analysts had a mixed response to the earnings results, though there seems somewhat of a downward bias.

Magnitude of Estimate Revisions

The first quarter beat was somewhat encouraging and now the Zacks Consensus Estimate is up a cent over the last 30 days to a loss of 22 cents for the full-year 2010. However, reflecting the downward bias on weak top-line growth, the Zacks Consensus Estimate is down 13 cents over the last 30 days to 57 cents for the full year 2011.

Our Take

Considering the trend and magnitude of the estimate revisions, we find that there is no clear directional pressure on the shares. This justifies the Zacks #3 Rank, which translates to a short-term “Hold” recommendation.

First Horizon has undertaken several measures to reduce its exposure to problem loans, control costs and boost capital levels. However, the challenging economic conditions continue to remain an overhang. Demand for loans is weak and fee income remains pressured as well.

We expect that the stressed economic environment to continue to pressure revenue momentum and compel credit metrics to remain high. Additionally, being a recipient of bailout money, the company is also subject to significant government interventions. As such, our long-term recommendation for the stock also remains “Neutral.”