BofA: Buy First Bancorp Ahead Of Puerto Rican Economic Recovery

First Bancorp FBP, the bank holding company for FirstBank Puerto Rico, is a buy ahead of an economic "jolt" — as the island's decade-long recession could be coming to an end, according to Bank of America Merrill Lynch. 

The Analyst

Analyst Ebrahim Poonawala upgraded First Bancorp from Neutral to Buy with a price target lifted from $9 to $11.50.

The Thesis

Shares of First Bancorp have nearly doubled since bottoming in late 2017, but there is a path to incremental upside, as post-hurricane efforts are in the early stages and should lift the economy out of a recession, Poonawala said in the upgrade note. (See the analyst's track record here.)

A continued inflow of relief funds will help a "reconstruction boom" that should turn around poor borrower demand and a return of private capital, the analyst said. 

Recent data from Puerto Rico's Economic Development Bank through July points to improving economic conditions, including nonfarm payroll employment, electric power generation, gas online consumption and cement sales, Poonawala said.

The improving Puerto Rican economy will result in revenue growth for First Bancorp, along with balance sheet improvements as management reduces the level of non-performing assets it holds, the analyst said. 

Finally, while there are still risks for First Bancorp, the company is overcapitalized, with a CET1 capital ratio of 19.7 percent, nearly double the median for smid-cap banks and the 15.8 percent median among its two closest Puerto Rican peers, according to BofA.

This creates a scenario where First Bancorp can strategically deploy its capital — via a common dividend, acquisitions or buybacks — and generate an extra 25 cents for 2019 EPS, or a projected 36-percent increase, Poonawala said. 

Price Action

First Bancorp shares were trading up more than 2 percent to $40.55 at the time of publication Thursday.

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