Is There Now an Opportunity in First Horizon After Recent Fed Rate Cut?

Trying to figure out what to do with First Horizon stock right now? You are not alone. Over the past few weeks, the company’s share price has taken investors on quite a ride. In just the last seven days, First Horizon fell nearly 15%, with a month-long slide of over 10%. Despite these recent bumps, it is worth remembering that the stock has soared more than 108% over the past five years, and it is still up almost 18% from this time last year. The current reality is a blend of near-term volatility and long-term growth, a combination that often piques savvy investors’ interest.

Some of those price swings have been linked to shifting market dynamics. Changes in regional banking sentiment, new regulatory considerations, and adjustments in broader financial sector risk have all played a role. While these factors can cause short-term uncertainty, they also create opportunities for investors willing to look beyond the headlines.

So, is First Horizon actually undervalued at this point? According to our value score, a measure based on six core valuation checks, the company scores a strong 5 out of 6. That means First Horizon passes almost every test for being considered undervalued, making it a stock that deserves a closer look.

In the next section, we will break down the valuation approaches to see where First Horizon stands on each front, and hint at an even smarter way to understand the stock’s true value at the end of the article.

Why First Horizon is lagging behind its peers

Approach 1: First Horizon Excess Returns Analysis

The Excess Returns model is designed to evaluate a company's ability to generate profits above the minimum required by investors. It factors in the cost of equity and focuses on how well the company deploys its capital to produce sustainable growth. For First Horizon, this approach uses several forward-looking estimates from analysts to create a picture of intrinsic value independent of market sentiment.

Here is the data at a glance:

• Book Value: $17.20 per share
• Stable EPS: $2.04 per share (Source: Weighted future Return on Equity estimates from 11 analysts.)
• Cost of Equity: $1.31 per share
• Excess Return: $0.72 per share
• Average Return on Equity: 10.85%
• Stable Book Value: $18.77 per share (Source: Weighted future Book Value estimates from 12 analysts.)

Based on this methodology, First Horizon’s intrinsic value is estimated at $37.17 per share. Compared to where the stock currently trades, this suggests it is trading at a 46.4% discount to its underlying worth, which marks it as significantly undervalued by this framework.

Result: UNDERVALUED

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for First Horizon.

Our Excess Returns analysis suggests First Horizon is undervalued by 46.4%. Track this in your watchlist or portfolio, or discover more undervalued stocks.

Approach 2: First Horizon Price vs Earnings

For profitable companies like First Horizon, the Price-to-Earnings (PE) ratio is often the best way to judge valuation. The PE ratio reflects the price investors are willing to pay for each dollar of earnings, making it a useful barometer for comparing companies of different sizes or across industries. Growth expectations and risk levels both influence what’s considered a “fair” PE. Higher growth or lower risk typically justify a higher ratio, while slower growth and higher risk may warrant a lower one.

Currently, First Horizon is trading at a PE ratio of 11.63x. For context, the average PE for the Banks industry is 11.25x, while its direct peer group averages 12.00x. So First Horizon sits just below its peers and a bit above the industry average, indicating the market views its earnings similarly to other banks in the sector.

But using Simply Wall St’s proprietary “Fair Ratio” gives an even more tailored assessment. The Fair Ratio estimates a company’s appropriate PE multiple by weighing factors like future earnings growth, profit margins, risk profile, market capitalization, and its specific banking industry. This individualized approach is far more insightful than a simple peer comparison, as it accounts for what makes First Horizon unique.

For First Horizon, the Fair Ratio comes in at 13.11x. Since this is a little above the current PE of 11.63x, it suggests the stock may be undervalued based on its growth and risk characteristics. The difference here is larger than the 0.10 threshold we have set for a neutral assessment, so investors looking for value in a quality bank may see an edge here.

Result: UNDERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your First Horizon Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let's introduce you to Narratives, a smarter approach for investors to connect a company’s story directly to real numbers and forecasts. A Narrative is your perspective on what’s driving First Horizon’s future, linking your beliefs about its business model or industry trends with key financial estimates like fair value, future revenue, earnings, and margins.

Narratives bridge the gap between “what you think will happen” and “what the numbers show,” helping you not only set your own fair value but also explain the rationale behind it. Best of all, Narratives are easy to use and available right now on Simply Wall St’s Community page, where millions of investors share and update their outlooks as news or earnings change.

By setting your own Narrative, you can instantly see whether First Horizon looks undervalued or overvalued to you. Simply compare your Fair Value against the current share price to spot buy or sell opportunities. For example, some investors may expect strong cost discipline will push fair value as high as $27.00, while others focusing on credit risks may set it closer to $22.00. Narratives adapt as new information emerges, empowering you to invest with confidence and clarity.

Do you think there's more to the story for First Horizon? Create your own Narrative to let the Community know!

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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