Goldman Sachs Says Evertec Bear Thesis Was 'Wrong,' Puerto Rico Recovering Faster Than Expected

Evertec Inc EVTC, a Puerto Rican transaction processing company, has seen its stock gain 15 percent over the past three months, prompting Goldman Sachs to announce its bear thesis was "wrong."

The Analyst

Goldman Sachs' James Schneider upgraded Evertec's stock rating from Sell to Neutral with a price target boosted from $12 to $17.

The Thesis

Evertec reported fourth-quarter revenue of $99.6 million, which was "well above" Schneider's estimate of $90 million. The beat is attributed to a faster-than-expected economic recovery in Puerto Rico after the destruction from hurricanes Irma and Maria in 2017. The company's 2018 outlook also implies a "meaningful recovery" from the hurricanes, as management guided for revenue growth of up to 5 percent year-over-year.

Evertec's consumer payment volumes improved over the past few months from a trough of a 50-percent decline on a year-over-year basis in October 2017 to now being flat, the analyst said.

The bear thesis on the stock was "wrong" and could be attributed to underestimating the rate of recovery in consumer spending by assuming it would take "several quarters" to fully recover, Schneider said. 

Net population migration away from Puerto Rico is still a long-term risk, but a faster-than-expected recovery in medium-term fundamentals no longer warrants a bear thesis on the stock, according to Goldman Sachs. 

Price Action

Evertec stock was up 5.61 percent at $16.95 in midday trading Thursday. 

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