Technological Investments And Favorable Markets Will Drive Future Success In 2025

Key Takeaways

• Strategic capital deployment through repurchases and dividends, along with loan growth, positions First BanCorp for future revenue and EPS growth.
  
• Operational efficiency and favorable economic conditions support sustained revenue and net interest income growth.
  
• Macroeconomic volatility and rising expenses pose risks to net margins and liquidity, despite commercial growth and efficiency, with potential impacts on credit provisions and reinvestment.

Catalysts

Operates as a bank holding company for FirstBank Puerto Rico that provides a range of financial products and services to consumers and commercial customers.

• First BanCorp plans to continue deploying its capital through strategic repurchases and a sustainable dividend payout policy, supported by a strong capital position. This indicates potential for future earnings per share (EPS) growth as the share count decreases over time due to buybacks.
  
• The company forecasts a mid-single-digit growth in loans, with expectations for growth across commercial, consumer, and mortgage segments, which should drive revenue and net interest income expansion in 2025.
  
• Efficient expense management and technological investments aimed at improving digital channels and customer service are expected to maintain or improve operational efficiency, potentially enhancing net margins.
  
• First BanCorp anticipates further net interest income growth aided by a favorable repricing environment and lower funding costs as maturing investments with low yields are reinvested in higher-yielding assets, treasury rate fluctuations notwithstanding.
  
• Economic indicators such as improved employment rates, record tourism metrics, and disaster relief fund inflows in their operating markets suggest a conducive environment for sustaining revenue and earnings growth in the near future.

First BanCorp Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming First BanCorp's revenue will grow by 10.2% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 34.0% today to 28.1% in 3 years time.
• Analysts expect earnings to reach $331.1 million (and earnings per share of $2.23) by about January 2028, up from $298.7 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 12.5x on those 2028 earnings, up from 11.3x today. This future PE is greater than the current PE for the US Banks industry at 12.3x.
• Analysts expect the number of shares outstanding to decline by 2.98% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.92%, as per the Simply Wall St company report.

First BanCorp Future Earnings Per Share Growth

Risks

• The company faces risks related to the potential volatility and uncertainty in macroeconomic conditions, such as fluctuating interest rates, which could impact their net interest income and earnings.
  
• Despite strong growth in the commercial loan portfolio, there is a noted increase in consumer loan delinquencies, which could impact overall net margins and necessitate higher provisions for credit losses.
  
• Cash flows from maturing investment securities are expected to be redeployed, but fluctuations in yields or a less favorable reinvestment environment could negatively impact net interest margin expansion and revenue.
  
• While the bank has effectively maintained a 52% efficiency ratio, increased expenses related to ongoing technology projects and branch network expansions could pressure net margins if not offset by revenue growth.
  
• Political and economic changes, particularly those affecting Puerto Rico’s reconstruction efforts and related government deposits, may introduce variability in core deposits, potentially affecting liquidity and funding costs.

Valuation

• The analysts have a consensus price target of $23.5 for First BanCorp 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 $26.0, and the most bearish reporting a price target of just $20.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.2 billion, earnings will come to $331.1 million, and it would be trading on a PE ratio of 12.5x, assuming you use a discount rate of 5.9%.
  
• Given the current share price of $20.79, the analyst's price target of $23.5 is 11.5% 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.