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10 Most Profitable Banks Trading Below Book Value


5. Popular Inc.

Shares of Popular Inc. (BPOP), of San Juan, Puerto Rico, closed at $26.84 Thursday, returning 29% during January, following a 50% return during 2012. The stock's 2012 performance was a partial recovery from a 56% drop during 2011. At the end of January, the shares were down 15% since the end of 2010.

Popular's shares trade for 0.9 time tangible book value, and for 9.4 times the consensus 2014 EPS of $2.86. That's the second-lowest forward P/E among this group of 10 stocks trading below tangible book value as of Jan. 31. The consensus 2013 EPS estimate is $2.49.

The company's ROA was 0.68% during 2012, and it had $36.5 billion in total assets as of Dec. 31. The company was able to make the most of a severe recession in the island territory by purchasing the failed Westernbank Puerto Rico from the Federal Deposit Insurance Corp. in April 2010. That acquisition included $9.4 billion in assets, $8.6 billion in deposits and 46 branches.

Popular on Jan. 24 reported fourth-quarter earnings applicable to common stock of $83.9 million, or 81 cents a share, increasing from $46.3 million, or 45 cents a share in the third quarter, and $2 million, or 2 cents a share, in the fourth quarter of 2011. Declining credit costs were the main factor in the earnings improvement, as the company in the fourth quarter transferred $3.5 million from loan loss reserves, after having made provisions for reserves of $22.6 million the previous quarter, and $55.9 million a year earlier.

The company reported that its nonperforming portfolio loans were at their lowest level since the second quarter of 2009. The ratio of nonperforming loans to total loans (excluding loan balances covered by FDIC loss-sharing) improved to 6.7% as of Dec. 31, from 8.44% a year earlier.

RBC Capital Markets analyst Gerard Cassidy rates Popular "outperform," although with "above-average risk," with a price target of $29.00. The analyst said in a report on Jan. 28 that although the company is still working through credit issues and "has several challenges to address in the near term, the company's fourth quarter performance reinforces our belief that it has turned the corner on credit and the common stock remains attractive at current levels."

Cassidy expects the Puerto Rican economy to emerge from its five-year recession this year. He also said that "a substantial in competitive pressures in the primary footprint may impact expected performance." The analyst estimates that Popular will earn $2.45 a share this year, with EPS rising to $2.75 in 2014.

BPOP Chart BPOP data by YCharts

Interested in more on Popular, Inc.? See TheStreet Ratings' report card for this stock.

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