Itau Unibanco (ITUB) Set For Long-Term Growth: Time To Buy?

We issued an updated research report on Brazil’s Itau Unibanco Holding S.A. ITUB on Dec 28, 2015.

Earlier in November, the company reported strong third-quarter 2015 results despite weakness in the domestic economy. Notably, the Sao Paulo-based lender saw 10.9% year-over-year jump in earnings to R$6.1 billion ($1.7 billion). The rise was driven by higher operating revenues (up 15.5%) and improved managerial financial margin (up 22.2%), along with a considerable rise in fee income (up 8%).

Itau Unibanco has a solid funding position as well as loan-making potential which safeguard its long-term prospects. Notably, deposits have grown at a Compound Annual Growth Rate (CAGR) of 9.8% over the last five years (2010–2014), while loans and leases recorded a CAGR of 11.3% during the same time frame. Moreover, management expects loans to grow in the range of 3–7% during 2015.

Additionally, amid growing concerns over profitability in the Brazilian economy, Itau Unibanco is making efforts to internationalize the bank.

In this regard, in September, Itau Unibanco announced that the merger between Banco Itau Chile S.A. (BIC) and Chile-based CorpBanca received approval from the regulatory authority in Chile — Superintendencia de Bancos e Instituciones Financieras (SBIF). The merger, approved by CorpBanca shareholders in July, will considerably strengthen Itau Unibanco’s footprint in Chile.

Nevertheless, increasing investments and expansion measures will lead to mounting expenses, thereby raising concerns about operational risks for the company. Notably, general and administrative expenses recorded a 5-year CAGR of 5.3% in 2014, with the uptrend continuing in the first nine months of 2015 as well. Moreover, non-interest expenses are anticipated to increase 7–10% during 2015.

Despite delivering a strong quarterly performance, the stock has been facing company-specific as well as local economic concerns. Notably, the stock has tumbled almost 44% year-to-date.

Analysts, too, hold a negative stance on the company, as evident from the downward estimate revisions over the past 60 days. As a result, the Zacks Consensus Estimate for earnings per share declined 2% to $1.09 for 2015 and 3% to 96 cents for 2016.

Itau Unibanco currently carries a Zacks Rank #3 (Hold).

Stocks to Consider

Investors interested in foreign banks may consider stocks like Grupo Financiero Galicia S.A. GGAL, Mizuho Financial Group, Inc. MFG and Barclays PLC BCS. While Grupo Financiero Galicia sports a Zacks Rank #1 (Strong Buy), Mizuho Financial and Barclays have a Zacks Rank #2 (Buy).

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BARCLAY PLC-ADR (BCS): Free Stock Analysis Report
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