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'Storm Is Brewing' for Banks

First Horizon National Corp.
Shares of First Horizon National Corp. (FHN - Get Report) of Memphis, Tenn., closed at $8.33 Monday, returning 4% year-to-date, following 32% decline during 2011. FHN Chart FHN data by YCharts

The shares trade just below their reported March 31 tangible book value of $8.78, and for nine times the consensus 2013 earnings estimate of 89 cents, among analysts polled by Thomson Reuters. The consensus 2012 EPS estimate is six cents, including an expected net loss of 50 cents a share when the company announces its second-quarter results on July 20, in the wake of a $272 million charge for mortgage putback reserves and related litigation.

Steven Alexopoulos rates First Horizon "Overweight," with an $11.50 price target, saying on Tuesday that "the biggest cat is already out of the bag," as "the company's preannouncement that it is taking a $272 million pre-tax charge related to mortgage putbacks and litigation expense in 2Q drove a rally in the shares as this was seen as a pull forward of expected provision needed for losses through 2013."

With JPMorgan expecting First Horizon's average loans to decline at an annualized pace of 8%, while securities grow 15% quarter-over-quarter, Alexopoulos expects to see some support to the company's net interest margin, contracting by two basis points to 3.10%.

The analyst also anticipates the company will announced that it repurchased 5.4 million shares during the second quarter, which is the same pace as in the first quarter.

JPMorgan estimates First Horizon to report core earnings of 28 cents a share this year, followed by core EPS of $1.09 in 2013.

Alexopoulos calls First Horizon "a turnaround story" and said on Tuesday that "while we could still see unexpected surprises, with each passing quarter not only is the company boosting earnings power via buybacks, but we also believe we get one step closer to the company evolving into one of the highest return on tangible equity banks in the industry."

Interested in more on First Horizon National Corp.? See TheStreet Ratings' report card for this stock.

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