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Long-Term And Short-Term Perspectives For EWZ

Jun. 08, 2020 3:23 PM ETiShares MSCI Brazil ETF (EWZ)4 Comments
James Cherry profile picture
James Cherry


  • In the short-term, I believe that EWZ has a possible alpha of 2.64% based upon a small appreciation of the Brazilian Real.
  • My long-term target price has an estimated upside of 61%, assuming a 43.7% increase in its equity value and a 17.3% increase in the exchange rate.
  • ok.

Since May 20th, the date of my second to the last article, NYSEARCA:EWZ produced an alpha of 18.7% in 12 trading days. 16.9% higher than my projected alpha as EWZ's benchmark index and the Brazilian Real recovered at a faster rate than the S&P during the same period.

This article is divided into two sections. In the first section, I will show my estimates for 2020 and the second section is for 2021. I recently conducted an analysis of the Forward and TTM P/E ratios on every stock held in EWZ's portfolio. This analysis led me to believe that investors are paying more attention to future estimates than current estimates.

Grinold-Kroner Model

Figure 1 - GK Model 2020

Grinold-Kroner Model (2020E)
Div1 Yield Inflation Earning g% +/- Shares P/E CHG% Total r%
2.3% 1.6% -38.9% -2.4% 11.0% -26.4%

The dividend yield input is based upon EWZ's current price of $31.50 and my estimated dividends for 2020 of 0.7235. I increased my dividend estimates from $0.6632 to 0.7235 to better reflect the relationship between earnings growth and dividends growth. My earnings growth is projected to be -38.9%, and I believe that my dividend growth (decrease in dividends) should be similar.

The most recent focus report from the Brazilian Central Bank demonstrated that analysts believe the inflation for 2020 will be 1.55%.

To calculate earnings growth for 2020, I had to use three different sources. I used Seeking Alpha, Yahoo Finance, and Valor Economico to find the average analysts' 2020 EPS estimates for all 57 companies in EWZ's portfolio.

I used the most recent P/E ratio of 11.71x provided by iShares and compared it to the historical average P/E ratio for EWZ, which is 13x according to the historical data that I collected over the years.

My Current

This article was written by

James Cherry profile picture
I am the Head of Content Strategy at Sproutfi, a fintech located in Brazil that is democratizing investing in Latin America.  I have over 13 years of experience in the Food Industry, ranging from plant engineer to Corporate Development and FP&A.You, the reader, will notice that most of my articles were written about investment ideas I was researching for my investments.My alma mater is the University of Arkansas, where I graduated with a BA and an MSc in Operations Management. I served in the United States Army for six years and was deployed several times, including in Iraq. After completing my military obligation, I moved to Brazil to begin my career in Finance. I received an MBA in International Business from FIA/FEA at the University of Sao Paulo. I have passed the Level 1 and Level 2 CFA Exams. My hobbies are: playing the guitar and drums, longboarding, mountain biking, scuba diving, reading non-fiction books, and giving financial advice to low-income households.Any article in Seeking Alpha reflects my opinion and not the opinion of Sproutfi.

Analyst’s Disclosure: I am/we are long EWZ. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (4)

invest2bfree profile picture
Please god give me one oppurtunity to buy this at $22. Was so close and missed out the did not want to chase.
If you consider that most or at least the ones that really impact the index are going to reach stock prices at the same level just prior to covid (financials and oil are the laggards right now) then 50.00 is an achievable figure in a couple of months (Ibovespa now is close to 100k already, after going all the way down to 63k, while just prior covid was at 119k)
James Cherry profile picture
@Russom, I will be thrilled if it does, but both the Real and Ibovespa are close to an RSI of 80. I feel like the uptrend is losing its strength.
@james,great analysis,great article,I'm in this and brzu.definitely feel brzu alittle riskier
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