First Horizon National Corporation (NYSE:FHN) shares are down more than -8.35% this year and recently increased 1.61% or $0.29 to settle at $18.34. F.N.B. Corporation (NYSE:FNB), on the other hand, is down -18.15% year to date as of 11/13/2017. It currently trades at $13.12 and has returned -2.89% during the past week.
First Horizon National Corporation (NYSE:FHN) and F.N.B. Corporation (NYSE:FNB) are the two most active stocks in the Regional – Southeast Banks industry based on today’s trading volumes. The market is clearly enthusiastic about both these stocks, but which is the better investment? To answer this, we will compare the two companies based on the strength of their growth, profitability, risk, returns, valuation, analyst recommendations, and insider trends.
The ability to consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Analysts expect FHN to grow earnings at a 10.09% annual rate over the next 5 years. Comparatively, FNB is expected to grow at a 9.50% annual rate. All else equal, FHN’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
A high growth rate isn’t necessarily valuable to investors. In fact, companies that overinvest in low return projects just to achieve a high growth rate can actually destroy shareholder value. Profitability and returns are a measure of the quality of a company’s business and its growth opportunities. We’ll use EBITDA margin and Return on Investment (ROI) to measure this., compared to an EBITDA margin of 54.74% for F.N.B. Corporation (FNB). FHN’s ROI is 18.20% while FNB has a ROI of 11.50%. The interpretation is that FHN’s business generates a higher return on investment than FNB’s.
Cash is king when it comes to investing. FHN’s free cash flow (“FCF”) per share for the trailing twelve months was +1.08. Comparatively, FNB’s free cash flow per share was +0.30. On a percent-of-sales basis, FHN’s free cash flow was 18.46% while FNB converted 0.01% of its revenues into cash flow. This means that, for a given level of sales, FHN is able to generate more free cash flow for investors.
FHN’s debt-to-equity ratio is 0.43 versus a D/E of 0.50 for FNB. FNB is therefore the more solvent of the two companies, and has lower financial risk.
FHN trades at a forward P/E of 14.11, a P/B of 1.72, and a P/S of 4.65, compared to a forward P/E of 12.59, a P/B of 0.98, and a P/S of 4.78 for FNB. FHN is the cheaper of the two stocks on sales basis but is expensive in terms of P/E and P/B ratio. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.
Analyst Price Targets and Opinions
A cheap stock is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. FHN is currently priced at a -12.21% to its one-year price target of 20.89. Comparatively, FNB is -16.59% relative to its price target of 15.73. This suggests that FNB is the better investment over the next year.
The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 2.50 for FHN and 1.70 for FNB, which implies that analysts are more bullish on the outlook for FHN.
Risk and Volatility
Beta is a metric that investors frequently use to analyze a stock’s systematic risk. A beta above 1 implies above average market volatility. Conversely, a stock with a beta below 1 is seen as less risky than the overall market. FHN has a beta of 1.04 and FNB’s beta is 0.93. FNB’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
The analysis of insider buying and selling trends can be extended to the aggregate level. Short interest, which represents the percentage of a stock’s tradable shares currently being shorted, captures what the market as a whole feels about a stock. FHN has a short ratio of 6.07 compared to a short interest of 5.90 for FNB. This implies that the market is currently less bearish on the outlook for FNB.
F.N.B. Corporation (NYSE:FNB) beats First Horizon National Corporation (NYSE:FHN) on a total of 7 of the 14 factors compared between the two stocks. FNB is growing fastly. In terms of valuation, FNB is the cheaper of the two stocks on an earnings and book value, FNB is more undervalued relative to its price target. Finally, FNB has better sentiment signals based on short interest.