When First Bancorp (FBP) first hit my growth screen, I thought the data feed had broken down! How else could you explain a regional bank stock trading not only below book value but expanding its earnings so fast that even the trailing multiples seemed absurdly low?
While some of the metrics are a bit overstated, the most recent earnings demonstrate that FBP is more than holding its own in what would otherwise be a grim interest-rate environment and lackluster local lending market.
Puerto Rico is not a territory a lot of people consider economically robust, but management has focused on the opportunities available at home as well as in crossover transactions with merchants and homeowners based in Florida and the Virgin Islands. There is little fat in the bank’s business model to make me suspect that growth or earnings are inflated in any way.
If anything, the market seems to be missing part of the math on FBP. The low stock price distorts P/E trends, leading a casual observer to mistake flat EPS targets for relative stagnation.
Analysts expect the bank to boost its earnings per share by only 10%-11% over the next year, but a rounding error is built into that calculation. On a raw net-income basis, the anticipated growth rate here is actually close to double that level. Plus, any improvement in the interest-rate spread will come as a profound relief from the extreme pressure that FBP’s net lending margins currently face.
As it is, FBP is trading at a trailing P/E ratio below its annualized growth rate, which makes it attractive even after the recovery in late October and early November. That’s a nice contrast to an industry that has seen its earnings actively shrink over the last year. The bank has also now returned to profitability, so we could see suspended dividends reinstated, giving traders an incentive to buy in. While a quarterly payout would not be overly large, FBP is generating enough income to support a yield of about 2.7% at these prices.
FBP is at an interesting point on its chart at current prices, around $4.80. This level had served as resistance for much of September and October but could now turn into support as the stock settles back after its recent earnings breakout. A successful test and move back higher could be supportive of another bullish leg up.