On Thursday, Itau BBA adjusted its stance on Nu Holdings (NYSE: NYSE:NU) shares, commonly known as Nubank, shifting the rating from Outperform to Market Perform. The firm also revised its price target for the company's shares, bringing it down to $15 from the previous $17. Itau BBA cited concerns about the company's third quarter performance, which is expected to lead to negative earnings revisions and a halt in the stock's multiple expansion.
Nubank's key performance indicators (KPIs) and credit quality remain solid, according to Itau BBA. However, the third quarter revealed an unexpected slowdown in revenue, particularly in Brazil's personal loans and card segments.
The analyst noted that while these core areas are still experiencing growth, the pace has decreased. Efforts in other areas such as payrolls and services for upper-income groups in Brazil or Mexico have not scaled sufficiently to offset the deceleration.
The analyst's outlook is also cautious due to the potential for a more challenging credit environment in 2025. This could lead to a deceleration in net interest income (NII) and an increase in the cost of risk. Consequently, the firm's forecast for fiscal year 2025 net income has been reduced by 17% to $2.8 billion.
Nubank's stock is currently valued at a price-to-earnings (P/E) ratio of 27 times. While Itau BBA still considers Nu Holdings a long-term winner in the financial sector, the firm has decided to adopt a more cautious approach and will observe the company's upcoming developments from a distance. The new year-end 2025 target price reflects this revised perspective.
In other recent news, Nu Holdings Ltd (BVMF:ROXO34). reported strong third-quarter results, with revenues reaching $2.94 billion, a significant 56% year-over-year increase, surpassing the consensus estimate of $2.85 billion. The company's earnings per share were in line with analyst predictions, coming in at $0.11. Nu's customer base saw substantial growth, expanding by 5.2 million in Q3, marking a 23% year-over-year rise, and reaching a total of 109.7 million worldwide.
Additional notable developments include the company's net income more than doubling year-over-year to $553.4 million, and an annualized return on equity (ROE) of 30%. Nu's efficiency ratio also improved, dropping to 31.4%, a 300 basis point enhancement from the previous year.
The company's international expansion efforts are bearing fruit, particularly in Mexico and Colombia, where customer bases grew to 8.9 million and 2 million respectively. Lastly, Nu maintained a strong liquidity position with an interest-earning portfolio of $11.2 billion, up 81% year-over-year, and total deposits increased to $28.3 billion, a 60% year-over-year growth. These are among the recent developments for Nu Holdings Ltd.
InvestingPro Insights
InvestingPro data and tips offer additional context to Itau BBA's revised outlook on Nu Holdings. Despite the downgrade, Nu Holdings showcases impressive growth metrics. The company's revenue growth stands at 86% over the last twelve months, with a robust 76.44% quarterly growth as of Q2 2024. This strong performance aligns with the InvestingPro Tip indicating that "Net income is expected to grow this year."
However, the stock's valuation remains a point of consideration. Nu Holdings is currently trading at a P/E ratio of 45.6, which is higher than Itau BBA's mentioned multiple of 27 times. This is consistent with the InvestingPro Tip stating that the company is "Trading at a high earnings multiple." Additionally, with a Price to Book ratio of 10.82, Nu Holdings is "Trading at a high Price / Book multiple," another insight from InvestingPro.
The stock's recent performance has been strong, with a 77.12% return over the past year and trading at 96.84% of its 52-week high. This aligns with the InvestingPro Tips noting a "High return over the last year" and "Trading near 52-week high."
For investors seeking a more comprehensive analysis, InvestingPro offers 7 additional tips for Nu Holdings, providing a deeper understanding of the company's financial position and market performance.
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