On Tuesday, Citi maintained its Buy rating on Popular, Inc. (NASDAQ:BPOP) stock and increased the price target to $123.00 from the previous $110.00. Citi's analysis of the company's quarterly results highlighted more positives than negatives, pointing to healthy core loan growth.
However, the firm anticipates a more muted second half of 2024, which slightly lowers the net interest income (NII) estimate due to the mix outlook of the Average Earning Assets (AEA).
Despite the anticipation of a quieter second half, Citi expects net interest income (NII) and net interest margin (NIM) to continue to rise over the next year. The forecast includes potential fluctuations due to the timing of Federal Reserve rate cuts and the lag in deposit costs, which may introduce more variability compared to the previous year.
Popular, Inc. recently announced a share repurchase authorization of $500 million, which was below Citi's expectation of $650 million but was approved a quarter earlier than anticipated. Citi suggests that Popular could possibly increase its payout ratio in the upcoming quarters or years, which would result in a lower Common Equity Tier 1 (CET1) ratio.
This speculation is based on the current economic strength of the island where Popular operates, combined with the observation that the company's CET1 ratio is roughly 600 basis points higher than its peers, which may be unnecessarily restrictive.
Citi's commentary concluded with the expectation that Popular, Inc.'s capital allocation could become less conservative as the economic trends in its operating region continue to exhibit robustness. However, the firm noted that achieving parity with peers in terms of capital is unlikely in the near term.
InvestingPro Insights
Popular, Inc. (NASDAQ:BPOP) has demonstrated a consistent commitment to shareholder returns, as evidenced by raising its dividend for five consecutive years and maintaining dividend payments for ten consecutive years. These InvestingPro Tips highlight the company's stability and investor-friendly approach, which may be of interest to those looking for steady income streams. Additionally, Popular's stock has been trading near its 52-week high and has seen a strong return over the last month, with a 15.52% price total return, and an even more impressive 21.05% over the last three months.
From a valuation perspective, Popular's current P/E Ratio stands at 14.47, with an adjusted P/E Ratio for the last twelve months as of Q2 2024 at 13.96, suggesting a potentially attractive entry point for value investors. The company's Price / Book ratio during the same period is 1.38, indicating that the stock may be reasonably priced relative to its net assets. Despite a revenue decline of 10.88% over the last twelve months, the quarterly revenue growth was a robust 72.76%, signaling potential recovery and growth prospects.
For investors seeking additional insights and metrics, there are more InvestingPro Tips available for Popular, Inc. at https://www.investing.com/pro/BPOP. Plus, use the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription, unlocking even more expert analysis and tips.
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