New Leadership And Puerto Rico Funds Will Drive Progress

Key Takeaways

• Appointment of new CEO Javier Farrer promises to ensure stability and potentially drive future growth in revenue and earnings.
  
• Focus on tourism sector and disaster fund disbursement should boost revenue, loan growth, and shareholder value.
  
• Leadership transition and macroeconomic volatility may negatively impact Popular’s strategic initiatives, earnings, and loan growth amid economic and local challenges.

Catalysts

Through its subsidiaries, provides various retail, mortgage, and commercial banking products and services in Puerto Rico, the United States, and the British Virgin Islands.

• The appointment of Javier Farrer as CEO is expected to bring a new energy and ensure a smooth transition while maintaining Popular's strong position, potentially fostering future growth in revenue and earnings.
  
• Popular's net interest income and net interest margin increased due to lower deposit costs and asset repricing. Their deposit growth strategy and controlled costs could significantly enhance future earnings.
  
• The ongoing disbursement of federal disaster recovery funds in Puerto Rico is expected to support economic activity, particularly impacting revenue and loan growth positively in coming years.
  
• Popular's focus on supporting the credit needs of the growing tourism and hospitality sectors, as well as benefiting from the increase in tourism-related activities, is likely to drive revenue growth.
  
• The commitment to a substantial share repurchase strategy, along with maintaining robust capital levels, is expected to enhance earnings per share (EPS) and shareholder value in the future.

Popular Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Popular's revenue will grow by 9.7% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 25.1% today to 23.4% in 3 years time.
• Analysts expect earnings to reach $842.5 million (and earnings per share of $13.28) by about May 2028, up from $687.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 9.7x on those 2028 earnings, down from 9.9x today. This future PE is lower than the current PE for the US Banks industry at 11.0x.
• Analysts expect the number of shares outstanding to decline by 4.55% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.21%, as per the Simply Wall St company report.

Popular Future Earnings Per Share Growth

Risks

• Concerns about macroeconomic volatility and tariff uncertainties could negatively impact Popular’s revenue growth, as they may affect market stability and client investment decisions.
  
• The ongoing transition of leadership, with CEO Ignacio Alvarez retiring and Javier Ferrer-Fernández stepping in, poses execution risks that could impact strategic initiatives and overall company performance, influencing future earnings.
  
• Popular's reliance on the construction and commercial segments for loan growth could be vulnerable to economic downturns, potentially affecting loan balances and net interest income.
  
• The banking environment in Puerto Rico might face challenges due to local issues like power grid reliability, which could deter new investment, impacting Popular's revenue and net interest margins.
  
• Popular faces potential risk from deposit outflows, particularly due to seasonal fluctuations and competitive pressures in its U.S. markets, which could increase cost of funds and impact net interest margins.

Valuation

• The analysts have a consensus price target of $115.556 for Popular based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $133.0, and the most bearish reporting a price target of just $103.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $3.6 billion, earnings will come to $842.5 million, and it would be trading on a PE ratio of 9.7x, assuming you use a discount rate of 6.2%.
• Given the current share price of $99.05, the analyst price target of $115.56 is 14.3% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.