Itau Unibanco Underappreciated On Its Leverage To Higher Rates And Strong Loan Demand

Stephen Simpson
20.39K Followers

Summary

  • Itau beat expectations in Q4'21 and management guided to strong loan growth in '22 and very strong net interest income growth, but the market seems, at best, skeptical.
  • I do see some macro risk to loan demand in Brazil in 2022 from higher costs (energy in particular) and weaker industrial output.
  • Credit quality is not really an issue anymore and Itau's strong presence in credit cards and revolving lines of credit gives it strong leverage to higher rates.
  • Even with a long-term earnings growth and ROE expectations below management and sell-side targets, Itau shares look 15% to 25% undervalued today.

Aerial of Rio de Janeiro

zxvisual/E+ via Getty Images

These are interesting times in the global economy, with many countries already seeing challenges to their post-pandemic recoveries even before the recent spike in oil prices. In Brazil, while sectors like construction have been fairly healthy, GDP is expected

This article was written by

20.39K Followers
Stephen Simpson is a freelance financial writer and investor.Spent close to 15 years on the Street (sell-side, buy-side, equities, bonds).

Analyst’s Disclosure:I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. 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.

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