On Tuesday, Goldman Sachs (NYSE:GS) updated its stance on XP Inc. (NASDAQ: NASDAQ:XP), downgrading the stock from Buy to Neutral and adjusting the price target to $23.00 from the previous $30.00.
The investment firm cited concerns over prolonged high-interest rates in Brazil as the primary reason for the downgrade. The country's benchmark Selic rate expectations have risen to 9.5% for 2024 and 9.0% for 2025. Alongside, inflation expectations have also escalated to 3.7% and 3.6% for these years, respectively.
The analyst expressed caution regarding the potential impact of these economic factors on XP Inc., suggesting that real interest rates may not sufficiently encourage increased investment inflows, especially into equity investments. Equity investments are considered a significant positive driver for XP Inc.
Despite acknowledging that XP's valuation appears relatively reasonable at 13.0 times the estimated 2024 earnings, the firm anticipates potential downward risks to consensus estimates.
Goldman Sachs has revised its estimates for XP Inc. to be 4-6% below the Bloomberg consensus. This revision reflects a more conservative outlook for the company's financial performance in light of the changing economic landscape. The analyst's commentary indicated a cautious approach to XP's future earnings potential amid the anticipated market conditions.
While the outlook for XP Inc. has been tempered, Goldman Sachs maintains a positive Buy rating on BTG (LON:BTG), another financial institution. The firm believes BTG is better positioned to navigate the challenges posed by higher interest rates due to its more diverse revenue stream and even more attractive valuation at 10.0 times the estimated 2024 earnings.
The shift in Goldman Sachs' perspective on XP Inc. reflects broader concerns about the impact of Brazil's monetary policy on the financial sector. The adjustment in the price target and rating for XP Inc. is a response to the evolving economic indicators and their potential effects on the company's growth and investment appeal.
InvestingPro Insights
As Goldman Sachs adjusts its position on XP Inc. (NASDAQ: XP), real-time metrics from InvestingPro provide a deeper financial perspective on the company. With a market capitalization of $11.75B and a Price/Earnings (P/E) ratio of 15.06, XP Inc. stands as a prominent player in the Capital Markets industry. The company's revenue has shown a healthy growth of 10.02% over the last twelve months as of Q4 2023, with an even more impressive quarterly revenue growth of 28.13% in Q4 2023, indicating a strong performance in the short term.
InvestingPro Tips highlight that management's aggressive share buyback strategy and the company's profitability over the last twelve months could be seen as signals of confidence in XP Inc.'s value proposition. However, it's worth noting that two analysts have revised their earnings downwards for the upcoming period, which may warrant caution. Additionally, the stock has experienced significant volatility, with a one-month price total return of -16.52% but a high return of 58.43% over the last year.
For investors seeking a more comprehensive analysis, there are additional InvestingPro Tips available at https://www.investing.com/pro/XP. Use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, and discover how these insights could shape your investment strategy.
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