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Piper Sandler analyst Frank Schiraldi assumed coverage of Puerto Rico-based banks Popular (NASDAQ:BPOP) and OFG Corp. (NYSE:OFG) with Overweight ratings and First BanCorp (NYSE:FBP) with a Neutral rating amid his overall bullishness on the Puerto Rico economy.
Popular (BPOP) stock gained 1.6%, OFG (OFG) rose 1.1%, and First BanCorp (FBP) increased 0.4% in Monday morning trading.
He points to “tailwinds related to continued reconstruction on the island, positive macro trends to date, and improving fiscal health overall.”
Puerto Rico’s economy suffered as a result of limited federal aid after the Great Recession, the 2014 Puerto Rico debt crisis, and Hurricane Maria in 2017. “However, in part due to reconstruction efforts and much more significant federal support and oversight, the island has more recently been enjoying healthy economic growth, ” Schiraldi wrote in a note to clients.
Tailwinds, including reconstruction distributions combined with a multiplier effect in the private sector and supportive tax incentives, provide significant near-term buffers to keep the economy from slipping into a recession, the Piper Sandler analyst said.
He sees Popular (BPOP) as the most attractive of the three and has the strongest potential for positive estimate revisions and share price upside over the next 12 months.
Positives include it position as the primary depository for government deposits, promising credit outlook, and attractive valuation.
OFG (OFG) “is the closest to a pure play in Puerto Rico as almost all of its exposure is limited to the island (aside from a small loan participation book on the mainland),” Schiraldi said. “With the greatest percentage of assets in PR, OFG has both the strongest NIM, as well as the strongest profitability of the group, posting an ROA of 1.8% in 2Q24.”
The stock continues to trade at a discount on a 2025 EPS basis — or ~11x 2025 consensus vs. at ~12.8x for its peers.
For First BanCorp (FBP), Schiraldi points to its upward net interest margin trajectory, well-controlled expenses, a strong capital position, and improvement in nonperforming loans in Q2. However, he sees more downside risk, in the event of a downturn, due to its large unsecured book. The bank’s superior profitability is already reflected in its valuation.
The SA Quant system assigns Buy ratings for Popular (BPOP) and First BanCorp (FBP), with a Strong Buy for OFG (OFG), the same as the average Wall Street ratings.
