NEW YORK (
) -- Two analysts on Friday initiated coverage of
(FBP - Get Report)
of San Juan, Puerto Rico, with price targets implying plenty of upside for investors.
Bank of America Merrill Lynch
analyst Erika Penala rated First BanCorp a "buy," with a $9 price objective. "We think FBP offers investors an opportunity to invest in one of the few remaining, 'early stage' credit recovery stories in the banking sector -- implying a more material incremental re-rate in market multiples and sentiment," Penala wrote in a note to clients Friday.
"In fact," she added, "the 33% potential upside implied by our PO is the highest in our coverage universe."
First BanCorp's shares closed at $6.75 Thursday. The shares traded for 1.3 times tangible book value, according to Thomson Reuters Bank Insight, and for 13 times the consensus 2014 earnings estimate of 52 cents a share. The consensus 2015 EPS estimate is 62 cents.
analyst Matthew Clark has an even sunnier outlook, initiating coverage of the stock on Friday with an "outperform" rating and a $10 price target, implying 48% upside over the next 12 months. His price target factors in a valuation of 10 times estimated earnings and 1.3 times tangible book value, when adding back an estimated recapture of $2.53 a share in deferred tax assets (DTA).
First Bancorp reported a DTA valuation allowance of $523.4 million as of June 30. The DTA increased from $384.4 million the previous quarter, because of "changes in tax rates" in Puerto Rico, and because the company reported a second-quarter loss of $122.6 million, which included a $72.9 million loss on the sale of nonperforming residential loans and a $66.6 million loss related to the write-off of assets pledged as collateral to Lehman Brothers, Lehman Brothers filed for bankruptcy in September 2008.
First BanCorp was a very troubled company at the height of the credit crisis, and received $400 million in federal bailout funds through the Troubled Assets Relief Program, or TARP, in January 2009. In July 2010, the U.S. Treasury's preferred shares in First BancCorp, plus $24.174 million in accrued dividends, were converted to mandatorily convertible preferred shares.