W Holding Company Worth a Look

I first wrote and invested in shares of W Holding Company, Inc. (WHI) on October, 2005 at an average price of $8.44. I sold my position in WHI on January, 2006 at $8.57. During the last year and a half since selling WHI, I’ve watched shares tumble from the $8 range to current prices in the $2 range.

W Holding Company, Inc. operates as the holding company for Westernbank Puerto Rico, which offers business and consumer financial services in Puerto Rico, the United States. As of December 31, 2006, the bank operated 56 bank branches, including 33 in the western and southwestern regions, 14 in the San Juan metropolitan area, 7 in the Northeastern region, and 2 in the Eastern region in Puerto Rico.

WHI’s primary challenges include a weak Puerto Rico economy and uncertain exposure to the Subprime mortgage market. Recent news over an impaired loan has also sent WHI shares on a downward spiral.

The summary of this article by Thomas Kirchner the manager of The Pennsylvania Avenue Event-Driven Fund illustrates the situation clearly:

Nevertheless, we believe that W Holding’s stock has suffered excessively on 6/29, as its maximum exposure is only $120 million and nowhere near the almost-$500 million loss in market capitalization.

Additional downward pressure on WHI comes from the tremendous angst generated by Doral Financial Corporation’s (DRL) scandal over restated earnings. The negative publicity over Doral had a ripple effect on investors confidence in shares of Puerto Rico’s banking institutions.

I believe an overblown reaction to the impaired loan has created a rebound in store for WHI. Adding additional weight to consider WHI as an investment is the attractive dividend, currently standing at 8.5% annually. Investors will be encouraged to know that dividend’s are paid on a monthly basis and the company has steadily raised the dividend amount since going public in 1994.

Current worries over subprime mortgages should dampen enthusiasm for banking stocks making WHI a sideways play for sometime. I do see that in the short-term there is a greater risk of exposure to the downside. Long-term I expect that WHI will be a double in the making. My long-term price target for WHI is $4. In the meantime I will continue to collect the 8.5% annual dividend.

*Disclosure: The author currently owns 5000 shares of WHI purchased at an average price of $2.17.

Comments

[wcrxlpeditorialcollective]

Why hasn't the takeover interest in this bank materialized?

Whether the interest is from institutions in the Mideast or Europe, it is overdue in materializing.

The bank's damaged assets are particularly attractive if re-priced in Euros.

Think AXA. Ignore UBS.

The WCRX-LP editorial collective