On Wednesday, JPMorgan (NYSE:JPM) upgraded Inter & Co Inc. (NASDAQ: INTR) stock from Neutral to Overweight, setting a new price target of $8.50, up from the previous $7.50.
The financial institution sees the recent market weakness as a favorable opportunity to invest in the company, citing a valuation of approximately 10 times the projected earnings for 2025 based on an estimated net income of R$1.5 billion for the upcoming year, which would equate to a return on equity (ROE) of around 15%.
The bank's optimism stems from its expectation that Inter & Co will continue to enhance its profitability. This anticipated improvement is attributed to two main factors: an expansion of risk-adjusted net interest income (NII) through strategies such as repricing and the introduction of new credit products, and an increase in operating leverage.
JPMorgan forecasts the company's revenues to grow at a compound annual growth rate (CAGR) of 28% from 2024 to 2026, while projecting that expenses will rise at a much slower pace, in the low teens.
The analysis also touches on the potential of PIX Finance, a product that Inter & Co is expected to benefit from, albeit not as a "silver bullet." The firm's projections include the company achieving about half the success that Nubank has had with similar offerings.
Additionally, possible reductions in taxes and increased leverage are seen as positive factors that could further enhance the company's ROE.
JPMorgan concludes with a projection that Inter & Co is on track to realize an impressive ~40% earnings per share (EPS) CAGR through to 2027. At that point, the company is expected to achieve a 20% ROE, which, while significant, still falls short of the company's own 30% ROE target for the same year.
In other recent news, Inter & Co reported significant growth and profitability in its second quarter. The company's earnings call highlighted an increase in its client base and product offerings, leading to considerable market share gains.
The acquisition of Granito, rebranded as Interpack, was underscored as a strategic move to enhance banking services and cross-selling opportunities. Inter & Co's Total Payment Volume (TPV) grew by 47% year-over-year, with credit card transactions exceeding debit transactions.
The company's loan book also expanded by 35%, attributed to strong performance in FGTS and home equity loans. Inter & Co aims to balance growth between investments and profitability, targeting a loan book of BRL 1 billion for PIX financing and buy now, pay later offerings.
The company plans to achieve a 30% efficiency ratio as part of its 6-year plan and is focusing on hiring in technology and commercial roles to support long-term growth. Despite increased marketing expenses and slower growth in insurance vertical's revenue, Inter & Co's future outlook remains optimistic.
InvestingPro Insights
Recent data from InvestingPro adds weight to JPMorgan's optimistic outlook on Inter & Co Inc. (NASDAQ: INTR). The company's revenue growth of 39.43% over the last twelve months as of Q2 2024 aligns with JPMorgan's projection of strong revenue expansion. This growth trajectory is further supported by an InvestingPro Tip indicating that analysts anticipate continued sales growth in the current year.
The company's profitability outlook also appears promising. With an operating income margin of 24.46% in the last twelve months, Inter & Co demonstrates its ability to convert revenue into profit effectively. This is reinforced by an InvestingPro Tip suggesting that analysts predict the company will be profitable this year, consistent with JPMorgan's expectations for improved profitability.
However, investors should note that the stock's price movements have been quite volatile, as highlighted by another InvestingPro Tip. This volatility could present both risks and opportunities for potential investors.
For those seeking a more comprehensive analysis, InvestingPro offers 11 additional tips for Inter & Co Inc., providing a deeper understanding of the company's financial health and market position.
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