We recently compiled a list of the 10 Best Local Bank Stocks to Buy. In this article, we are going to take a look at where First Horizon Corporation (NYSE:FHN) stands against the other best local bank stocks.
A report by PwC predicts a revival in the US banking industry due to a pro-business policy expected from the Republican government. Key drivers for growth will be an increase in the demand for loans, steady securities business, and a lower benchmark rate. The estimated growth in net income from the overall banking sector is around 5.7%.
Deloitte predicts better economic growth in the US compared to 2024. Technology adoption can be a key driver for boosting output through efficiency in labor productivity. The CPI should also hover closer to the 2% market, prompting the central bank to lower interest rates. While lower lending costs may boost loan demand, a sticky deposit rate can hurt interest margins for banks. Deposit costs are expected to be at an elevated level of 2.03%, far above the 5-year average of 0.9%. This may create a pricing war between banks to procure more low-cost funds.
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In 2024, the fee-based income for banks was driven by capital market activities. The trend is expected to continue as asset prices increase. Non-interest income as a percentage of average assets should reach a level of 1.5%, a figure that has not been breached in the last five years. The expense ratio for banks increased by 200 bps in 2024 to reach 60%. The ratio should hover around this level in the next few years. Credit quality may suffer marginally due to a growing loan book with delinquency rates expected to rise for credit card, auto, and commercial real estate loans. Larger banks with a diversified business are expected to perform better but regional banks have been strategically shuffling their book to obtain a more favorable product mix.
Regional Bank ETFs have generated returns of 5.82%, 11.25,% and 25.33% for 1-month, 6-month and 1-year tenors. The underlying banks have demonstrated resilience in a challenging business environment without affecting their capital adequacy and credit quality.
Our Methodology
For this article, we scanned through various credible sources and identified their consensus picks of local bank stocks from their recent articles. Next, we sorted these companies based on the number of hedge funds in Insider Monkey’s database that owned stakes in these companies. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
An experienced banker offering financial advice to a young couple.
First Horizon Corporation (NYSE:FHN)
Number of Hedge Fund Investors: 44
First Horizon Corporation (NYSE:FHN) is headquartered in Tennessee and offers various financial services through its Regional Banking and Specialty Banking segments. The stock price is up 47% in the last year due to strong financial performance and a consistent rise in price targets by analysts. In its latest assessment, Wells Fargo revised the target for FHN from $21 to $22.
The full-year results have been a mixed bag with EPS missing the analysts’ expectation by 6.7%. Even as the revenue grew by 1.9%, the net interest margin dropped from 3.42% to 3.35%. The profit margin was down from 29% to 24% as operational costs of First Horizon Corporation (NYSE:FHN) increased. On the brighter side, the revenue guidance estimates an average growth of 7.2% in the next three years compared to 7% for the industry. As a strategic move, FHN is restructuring its securities portfolio which should provide room for further margin expansion. First Horizon Corporation (NYSE:FHN) also offers a reasonable forward dividend yield of 2.8%.
Overall FHN ranks 7th on our list of the best local bank stocks to buy. While we acknowledge the potential of FHN as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than FHN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
