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Buy First BanCorp Stock Now: Analysts

NEW YORK (TheStreet) -- Two analysts on Friday initiated coverage of First BanCorp (FBP) 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.

Credit Suisse 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.

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