Barclays On Popular Bank: 'Island Life Can Be Tough Sometimes'

Given Popular Inc BPOP's excess capital and valuation discount to U.S. peers, Barclays’ Matthew J. Keating believes the stock offers an “interesting” intermediate term investment option.

Keating initiated coverage of Popular with an Equal-Weight rating and price target of $32.

Positives

“Given the magnitude of the issues facing Puerto Rico, we await greater visibility on its economic future before becoming more constructive on BPOP,” the analyst mentioned.

At the same time, Keating noted that despite all the problems being faced by Puerto Rico, the stock was already well liked and was the second-most recommended stock in Barclays’ coverage universe.

However, the analyst also pointed out key near-term concerns for the company.

Related Link: Puerto Rico Being Sued By Hedge Funds For Dodging Payments

Near-Term Concerns

“First, the lack of economic growth is catching up with the island's banks, with loans down 10 percent in 2015,” Keating stated.

In addition, future measures of fiscal austerity could lead to further pressure on Puerto Rico’s economy, while population migration was at its highest levels in the country since the 1950s.

The analyst also noted that the CDC expects 25 percent of the country’s residents to be at risk to contracting the Zika virus by year-end 2016.

“Finally, recent reform proposals lack the stimulus needed to jump-start its economy,” Keating added.

The analyst expects the stock’s valuation multiple to remain close to recent levels in 2H16.