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TheStreet Open House

5 Cheapest Bank Stocks (Update 1)

Stocks in this article: BAC C JPM DFS COF BPOP FRC EVER SBNY EVTC I:BKX

2. Popular

BPOP Chart BPOP data by YCharts

Shares of Popular (BPOP), of Hato Rey, Puerto Rico, closed at $33.31 Friday, returning a 60% this year, following a 50% return during 2012. The shares trade for 9.3 times the consensus 2015 EPS estimate of 3.57. The consensus 2014 EPS estimate is $3.12.

Popular owes $935 million to the U.S. Treasury for bailout assistance received in December 2008 through the Troubled Assets Relief Program, or TARP.

The company reported second-quarter net income applicable to common stock of $326.5 million, or $3.18 a share, increasing from $64.8 million, or 63 cents a share, a year earlier. The second quarter featured significant one-time items, including an after-tax gain of $156.6 million from the initial public offering in April of its former transaction processing subsidiary Evertec (EVTC). After selling a portion of its Evertec shares, Popular had a 33.5% stake in the former subsidiary as of June 30.

Popular also sold about $435 million in nonperforming mortgage loans during the second quarter, booking an after-tax loss of $107.1 million.

Excluding the gains on the Evertec IPO and sale of shares, accounting adjustments from the discontinuation "the elimination of its proportionate ownership share of intercompany transactions with EVERTEC from their respective revenue and expense categories," and the "impact of the Puerto Rico tax reform, Popular said its adjusted second-quarter earnings came to $68.1 million.

Popular has been working for several years to move beyond the severe and extended recession in Puerto Rico. The company said that as of June 30, nonperforming loans made up 2.85% of its total loans held in portfolio, reaching "their lowest level since 2006."

KBW analyst Brian Klock rates Popular "outperform," with a price target of $36, and in a note to clients on July 18 wrote, "We believe core earnings power and fundamentals continue to improve and while provisions for loan losses were higher this quarter, we expect more credit leverage in the quarters to come to help drive bottom-line growth."

"BPOP remains one of the few larger regional banks with strong capital levels, solid pre-tax, pre-provision ROA levels (with levers to improve ROA) and credit leverage," according to Klock. "Plus, we believe BPOP is well-positioned to exit TARP within the next 2-4 quarters without a common raise."

Popular is quite a recovery story, and the bank hasn't finished traveling its path to solid profitability, meaning there could be plenty of upside heading into the TARP repayment.

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

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