On Wednesday, BofA Securities maintained its Buy rating on XP Inc. (NASDAQ: NASDAQ:XP), with a steady price target of $31.00. The firm's assessment came after XP Inc. reported a net income of R$1.0 billion, which was slightly below expectations, exhibiting no significant change from the previous quarter but marking a 29% increase year-over-year, or 11% when excluding an event related to Americanas.
The company's assets under custody (AUC) growth, retail net inflows, and client additions were reported to be weaker than anticipated due to poor market performance in the first quarter of 2024. This led to a lower core retail revenue growth than expected. However, the issuer services sector outperformed forecasts, driven by strong Debt Capital Market (DCM) activity. Banking revenues also displayed strength, particularly from card services and credit, indicating effective cross-selling strategies.
Cost of goods sold (COGS) was slightly above the estimates from BofA Securities, influenced by increased commissions paid to Independent Financial Advisors (IFAs). Selling, general, and administrative expenses (SG&A) were in line with expectations. Despite these factors, the earnings before tax (EBT) margin declined by 80 basis points year-over-year to 26.9%, which is below the company's 2026 guidance range of 30-34%.
XP Inc.'s management, during the conference call, emphasized that reaching the margin target is contingent on a return to a more normalized macroeconomic environment. The current high-interest rate climate has been detrimental to equity trading volumes and capital markets activity, delaying the anticipated improvement in XP Inc.'s earnings. This delay appears to be factored into the company's valuation, which is currently at approximately 13 times the estimated 2024 earnings.
InvestingPro Insights
As XP Inc. navigates through a challenging economic landscape, real-time data from InvestingPro provides a deeper understanding of the company's current financial health and market position. With a market capitalization of $11.76 billion and a P/E ratio that has been adjusted to 14.96 for the last twelve months as of Q4 2023, XP Inc. stands as a significant figure in the Capital Markets industry. The company's revenue growth of 10.02% over the same period indicates a robust financial performance despite market volatility.
InvestingPro Tips reveal that XP Inc.'s management has been actively buying back shares, which could be interpreted as a sign of confidence in the company's future prospects. Additionally, while analysts have revised their earnings downwards for the upcoming period, they also predict that the company will be profitable this year, a sentiment supported by XP's profitability over the last twelve months. Notably, XP Inc. does not pay a dividend, which may be relevant for investors focused on income generation.
For investors seeking more comprehensive insights, InvestingPro offers additional tips on XP Inc., which can be accessed at https://www.investing.com/pro/XP. Take advantage of the exclusive offer using coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, unlocking a total of 7 InvestingPro Tips that could further inform investment decisions.
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