Keefe Bruyette raises First Horizon stock price target on guidance

KBW raised First Horizon's price target to $26 from $25 while keeping a Market Perform rating, citing sustained profitability, controlled expenses, strong credit trends, and durable revenue. The bank reiterated 2026 guidance and posted a third straight quarter with 15% return on tangible common equity, while Q1 2026 EPS came in at $0.53 versus $0.50 expected, though revenue missed slightly at $862 million versus $868.91 million. The stock has risen 44% over the past year and currently trades at 12.18x earnings, reinforcing the valuation debate.

Analysis

The setup is less about one bank’s earnings print and more about the market re-rating the entire regional-bank cohort around a higher-throughput earnings base. If management teams can keep returns elevated while funding pressures stay contained, the winners will be lenders with sticky deposit franchises and operating leverage; the laggards will be banks still dependent on wholesale funding or heavy rate-sensitive loan books. That creates a relative-value tailwind for higher-quality regionals versus money-center banks that have less EPS torque from normalization.

The second-order effect is that valuation compression may coexist with still-rising absolute earnings, which is exactly the regime where single-name upside gets capped but downside in weaker franchises remains real. For FHN specifically, the key question is not whether the business is improving, but whether the market has already capitalized most of the good news after a strong run. A 2% earnings upside at the midpoint is not enough to justify aggressive re-rating unless there is evidence of accelerating loan growth or a clearer path to capital return expansion.

The main risk to the bullish case is a small deterioration in credit or funding mix over the next 1-2 quarters; regional banks can move from “clean execution” to “multiple compression” quickly when investors worry about deposit beta or CRE exposure. Conversely, if rates stabilize and the bank continues to print returns near current levels into the next earnings cycle, the current discount to intrinsic value likely persists rather than expands, implying more grind than breakout. The consensus may be missing that this is a quality story, not necessarily a catalyst-rich story; that usually favors owning stronger peers over chasing the best-performer.

Key Decisions for Investors

• Avoid initiating outright long FHN here; use the name as a relative-value short against a lower-quality regional bank with weaker deposit franchise and higher funding sensitivity over the next 1-2 quarters.
• For banking exposure, rotate into a basket of higher-quality regionals with similar profitability but better catalyst paths; FHN looks more like a hold than a fresh long after a 44% one-year move.
• If already long FHN, consider monetizing upside via a 3-6 month covered call to harvest elevated earnings quality while capping near-term multiple expansion risk.
• Pair trade: long stronger regional-bank fundamentals vs short FHN if the goal is to express “higher earnings, lower valuation” through the cheapest quality instead of the best-run balance sheet.
• Set a downside trigger around the next earnings cycle: any deposit-cost acceleration or credit normalization should be treated as a quick de-rating event, not a slow fundamental drift.