First Horizon (FHN) Stock Could Still Be Mispriced As Returns Hold Up
First Horizon stock has more than doubled over the past three years, and at around US$25.53 a share the Excess Returns intrinsic value estimate now points to meaningful upside, while traditional earnings based multiples suggest the stock is closer to fairly valued. This sets up a clear valuation tension for investors to weigh.
- Shareholders have seen a 105.9% total return over three years, which puts recent short term fluctuations into the context of a strong multi year rerating.
- Expectations for First Horizon's ability to keep generating solid, repeatable earnings and manage credit risk effectively can support the current price, while any deterioration in asset quality or funding costs may put pressure on what investors are willing to pay.
- On Simply Wall St's broader checks, First Horizon screens as undervalued in 5 of 6 areas. This means the overall valuation framework leans cheap even though headline multiples look about right, according to the valuation score of 5/6.
The issue now is whether the gap between First Horizon's market price and the Excess Returns intrinsic value estimate offers enough margin of safety after such a strong three year run.
Find out why First Horizon's 15.0% return over the last year is lagging behind its peers.
Does First Horizon Look Undervalued on Excess Returns?
The Excess Returns model looks at how much profit First Horizon can generate on its equity after covering its cost of capital. For this stock, the model uses a book value of $17.90 per share and an average return on equity of 11.90%, which translates into stable earnings of about $2.35 per share, based on estimates from 10 analysts. Against a cost of equity of $1.40 per share, that leaves an excess return of $0.95 per share and a stable book value projection of $19.72 per share from 12 analyst estimates.
When those excess profits are capitalised, the model arrives at an intrinsic value of about $46.23 per share. Compared with the current share price around $25.53, First Horizon appears materially undervalued according to this model, with the Excess Returns work implying a 44.8% discount to intrinsic value.
On this Excess Returns view, First Horizon stock appears undervalued relative to what its projected profitability on equity would justify.
Our Excess Returns analysis suggests First Horizon is undervalued by 44.8%. Track this in your watchlist or portfolio, or discover 48 more high quality undervalued stocks.
Does First Horizon Look Fairly Valued on Earnings?
P/E is usually the go to multiple for banks, because earnings capture both lending margins and credit costs in a single figure. For First Horizon, the stock trades at about 11.8x earnings, which sits slightly below the banks industry average of roughly 12.0x and close to the peer average of 12.1x.
The tailored fair P/E ratio for First Horizon, which adjusts for its size, risk profile and industry, is calculated at about 12.6x. That is only a modest step above the current 11.8x. This indicates that the market price is broadly in line with what this framework suggests, rather than implying a clear discount or premium.
On the P/E multiple, First Horizon stock currently looks roughly fairly valued compared with both peers and its modelled fair ratio.
See what the numbers say about this price — find out in our valuation breakdown.
The First Horizon Narrative: What Would Justify Today's Price?
Simply Wall St Narratives for First Horizon pick up where this valuation puzzle leaves off by spelling out which paths for First Horizon's growth, margins and earnings would line up with a price meaningfully above or below where the stock trades today, and they sit on the company's Community page. Each one links its number to a clear view on how growth, profitability and risks could evolve, giving you something concrete to revisit as fresh information comes through.
Share a narrative on First Horizon to present your own number-driven case for where its growth, margins, and execution go from here, and see how your thesis stacks up as new results and updates arrive.
Do you think there's more to the story for First Horizon? Head over to our Community to see what others are saying!
The Bottom Line
For First Horizon, the Excess Returns intrinsic value estimate points to a sizeable discount, while the P/E view suggests the stock is priced roughly in line with similar banks. That split reflects different lenses, with the intrinsic value work leaning on the durability of returns on equity and the multiple view anchored in how the market prices those earnings today. With broader checks screening positively, the key question is whether First Horizon can sustain its earnings power and credit discipline enough for the intrinsic value case to close the gap, rather than the share price simply tracking peers from here.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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