First Bancorp (NYSE:FBP) shares are up more than 5.49% this year and recently increased 3.07% or $0.16 to settle at $5.38. Popular, Inc. (NASDAQ:BPOP), on the other hand, is up 7.19% year to date as of 01/10/2018. It currently trades at $38.04 and has returned 4.25% during the past week.
First Bancorp (NYSE:FBP) and Popular, Inc. (NASDAQ:BPOP) are the two most active stocks in the Foreign Regional Banks industry based on today’s trading volumes. We will compare the two companies based on the strength of various metrics, including growth, profitability, risk, return, and valuation to determine if one is a better investment than the other.
The ability to consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Analysts expect FBP to grow earnings at a 7.60% annual rate over the next 5 years. Comparatively, BPOP is expected to grow at a 5.00% annual rate. All else equal, FBP’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Growth isn’t very attractive to investors if companies are sacrificing profitability and shareholder returns to achieve that growth. We will use EBITDA margin and Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return., compared to an EBITDA margin of 31.38% for Popular, Inc. (BPOP). FBP’s ROI is 18.30% while BPOP has a ROI of 19.20%. The interpretation is that BPOP’s business generates a higher return on investment than FBP’s.
The value of a stock is simply the present value of its future free cash flows. FBP’s free cash flow (“FCF”) per share for the trailing twelve months was +0.23. Comparatively, BPOP’s free cash flow per share was +1.11. On a percent-of-sales basis, FBP’s free cash flow was 0.01% while BPOP converted 5.86% of its revenues into cash flow. This means that, for a given level of sales, BPOP is able to generate more free cash flow for investors.
FBP’s debt-to-equity ratio is 0.11 versus a D/E of 0.18 for BPOP. BPOP is therefore the more solvent of the two companies, and has lower financial risk.
FBP trades at a forward P/E of 15.20, a P/B of 0.63, and a P/S of 1.99, compared to a forward P/E of 10.44, a P/B of 0.74, and a P/S of 2.31 for BPOP. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.
Analyst Price Targets and Opinions
A cheap stock is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. FBP is currently priced at a -20.77% to its one-year price target of 6.79. Comparatively, BPOP is -14.73% relative to its price target of 44.61. This suggests that FBP is the better investment over the next year.
The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 1.80 for FBP and 1.70 for BPOP, which implies that analysts are more bullish on the outlook for FBP.
Risk and Volatility
No discussion on value is complete without taking into account risk. Analysts use a stock’s beta, which measures the volatility of a stock compared to the overall market, to measure systematic risk. A stock with a beta above 1 is more volatile than the market. Conversely, a beta below 1 implies a below average level of risk. FBP has a beta of 1.89 and BPOP’s beta is 1.10. BPOP’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Comparing the number of shares sold short to the float is a method analysts often use to get a reading on investor sentiment. FBP has a short ratio of 2.48 compared to a short interest of 3.14 for BPOP. This implies that the market is currently less bearish on the outlook for FBP.
First Bancorp (NYSE:FBP) beats Popular, Inc. (NASDAQ:BPOP) on a total of 8 of the 14 factors compared between the two stocks. FBP is growing fastly, is more profitable, higher liquidity and has lower financial risk. In terms of valuation, FBP is the cheaper of the two stocks on book value and sales basis, FBP is more undervalued relative to its price target. Finally, FBP has better sentiment signals based on short interest.