Operational Excellence And Repurchases Will Support Resilience Amid Narrowing Margins

Key Takeaways

• Robust loan growth, digital investment, and a healthy labor market are boosting earnings potential and supporting stable asset quality.
  
• Reinvestment strategies and disciplined capital return policies enhance profitability, protect downside risk, and improve shareholder value.
  
• Heavy reliance on limited markets, rising regulatory costs, and lagging digital adoption could undermine growth, profitability, and stability amid competition and demographic challenges.

Catalysts

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

• Puerto Rico's ongoing economic recovery, coupled with strong commercial loan demand and continued federal infrastructure investment, is supporting robust loan growth at First BanCorp; this rising lending activity sets the stage for higher future revenues and earnings.
  
• 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.
  
• Favorable labor market conditions and improving consumer health are reducing credit losses, as seen in lower net charge-offs and stable/non-improving asset quality metrics, which could support more stable and higher earnings in the future.
  
• The ability to reinvest large volumes of maturing lower-yield securities into higher-yielding assets over the next 12 months is expected to drive incremental improvements to net interest margin, directly benefiting both revenue and net income.
  
• A disciplined capital return policy including buybacks and dividends, combined with a strengthening tangible capital base, provides downside protection and has the potential to enhance EPS and tangible book value per share.

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 34.4% today to 29.3% in 3 years time.
• Analysts expect earnings to reach $349.9 million (and earnings per share of $2.37) by about September 2028, up from $306.7 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 13.0x on those 2028 earnings, up from 11.3x today. This future PE is greater than the current PE for the US Banks industry at 11.9x.
• Analysts expect the number of shares outstanding to decline by 2.1% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.78%, as per the Simply Wall St company report.

First BanCorp Future Earnings Per Share Growth

Risks

• Persistent demographic stagnation or decline in Puerto Rico and the Caribbean could shrink First BanCorp's core customer base, potentially slowing loan and deposit growth and leading to lower long-term revenue.
  
• Limited geographic diversification leaves First BanCorp disproportionately exposed to localized economic shocks, natural disasters, or changes in government funding priorities in Puerto Rico and Florida, introducing the risk of volatile earnings and revenue disruption.
  
• Heightened competition for commercial deposits, particularly from high-yield seeking customers in a "higher for longer" interest rate environment, could increase funding costs or pressure net interest margins, making it harder to sustain current profitability levels.
  
• Ongoing need for significant investment in technology and digital transformation, combined with slower adoption of digital banking services relative to larger mainland competitors, may strain expense management and limit the company's ability to generate new sources of fee-based revenue, negatively impacting long-term margins and earnings growth.
  
• Intensifying regulatory requirements and compliance costs-especially related to anti-money laundering and cybersecurity-could erode operational efficiency and profitability, making it more challenging for First BanCorp to maintain its current efficiency ratio and earnings trajectory.

Valuation

• The analysts have a consensus price target of $25.0 for First BanCorp based on their expectations of its future earnings growth, profit margins and other risk factors.
• 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 $349.9 million, and it would be trading on a PE ratio of 13.0x, assuming you use a discount rate of 6.8%.
• Given the current share price of $21.75, the analyst price target of $25.0 is 13.0% 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.