A Look at First BanCorp's Valuation as Rate Cut Hopes Spark Regional Bank Rally

First BanCorp (FBP) is back in the headlines after a surge that followed Jerome Powell’s remarks at the Jackson Hole symposium. Powell hinted that the Federal Reserve may be looking at rate cuts as inflation shows signs of cooling and unemployment remains low. For regional banks like First BanCorp, this was a cue: investors worried about the pressure of high rates quickly shifted gears, sending shares higher as sentiment across the sector improved.

Looking at the past year, First BanCorp’s stock has posted an 8% return. The real action has been recent, with a 21% gain year-to-date and nearly an 8% jump over the past three months. After some choppy trading in 2023, the latest rally builds on steady annual revenue and profit growth. This follows a broader pattern seen in other mid-sized banks responding to changing rate expectations.

Now the big question is whether the market has it right, or if First BanCorp’s current price is still lagging its long-term value. Is there real upside here, or are investors already looking ahead?

Most Popular Narrative: 11% Undervalued

According to community narrative, analysts view First BanCorp as undervalued based on forward earnings growth, anticipated margins, and a projected price target above today's share price.

The bank's aggressive and sustained investment in digital platforms, evidenced by multi-year growth in active digital users and streamlined operations, positions it to capture cost efficiencies and improve net margins as customers shift toward digital channels.

What is really driving this upside call? The heart of this narrative centers on a bold future for earnings, set in motion by a few key variables that most investors might overlook. Curious about which assumptions support such a bullish fair value? The full narrative breaks down the main factors that could move the stock significantly higher if analyst projections are realized.

Result: Fair Value of $25 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, ongoing demographic headwinds in Puerto Rico and heightened competition for deposits could quickly challenge even the most optimistic projections for First BanCorp’s future growth.

Find out about the key risks to this First BanCorp narrative.

Another View: DCF Model Indicates Potential for More Upside

While analysts base their fair value on future earnings, a different approach using the SWS DCF model suggests the shares may be even more undervalued. Why do these models diverge so significantly? Which method will ultimately be more accurate for investors?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out First BanCorp for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own First BanCorp Narrative

If you see things differently or prefer to dig into the metrics yourself, you can quickly build your own take in just a few minutes, do it your way.

A great starting point for your First BanCorp research is our analysis highlighting 2 key rewards and 1 important warning sign that could impact your investment decision.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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