First Tennessee National Corp. enjoyed a spate of good publicity last week, receiving a "strong buy" recommendation from a well-respected Wall Street analyst and favorable comment in a Barron's article.
Thomas K. Brown of Donaldson, Lufkin & Jenrette issued the recommendation on First Tennessee stock, citing the Memphis-based bank's diversified earnings stream and relative price weakness. "We believe," Mr. Brown wrote, "First Tennessee's earnings growth rate will be among the fastest in the banking industry over the next few years."
Meanwhile, Barron's May 22 issue applauded First Tennessee for emerging "as a powerhouse in the federal debt market." The weekly noted that First Tennessee, which has $10.9 billion of assets, has underwritten $7.3 billion of federal agency debt so far this year, second only to Merrill Lynch.
The kind words must have been welcome at First Tennessee, coming as they did on the heels of disappointing first quarter earnings. Net income slumped 21% to $31.6 million compared to the 1994 period, mostly due to a shrinking net interest margin and a $5 million after-tax charge related to a recent acquisition.
Mr. Brown believes the rest of the year will be better. He predicted that First Tennessee "will show consistent quarter-to-quarter improvements and the company will most likely report one of the strongest year-to-year earnings gains" in 1995.
Following a recent visit with company executives, Mr. Brown upgraded his 1995 estimate on First Tennessee from $4.60 a share to $4.70. He upped his 1996 estimate by 15 cents to $5.60 a share.
Mr. Brown wrote that his estimates reflect "stronger assumed growth in the company's bond division and mortgage banking businesses and a somewhat higher net interest margin."
Wall Street has penalized First Tennessee in the past for depending so heavily on fee income. Nearly 40% of the company's earnings now come from the bond division, mortgage banking, credit cards, and other specialty businesses.
Mr. Brown expects these fee businesses, which are growing faster and have higher profits than First Tennessee's core banking operation, to reach 45% of revenues this year. He predicted the company's "attractive business mix will earn it a higher relative p/e multiple" in the future.