Brazil Recovery Slow for Bradesco

We are continuing our Hold on Banco Bradesco S.A. (BBD - Snapshot Report). In its first quarter report, Bradesco posted net earnings before nonrecurring items of R$1,907 million, up 12% year over year, but below our estimate due to lower-than-expected fee income growth. Furthermore, the company’s exposure to the volatile Brazilian economy adds to uncertainties.

Bradesco continues to benefit from economic recovery in Brazil, though slower than previously expected. As a result of better economic conditions, the Brazilian credit business has been growing, and Bradesco has been able to take advantage of this improved economic environment. Due to Bradesco’s successful segmentation strategy, it has experienced solid portfolio growth in consumer and small and medium-sized companies.

At its current price, Banco Bradesco’s ADS are now trading at 13.4X the 2008 consensus earnings estimates and 11.8X the 2009 consensus estimates, with both years well above the industry medians of 10.4X and 8.5X, respectively. Our $23 price target represents a 12 ¼X P/E multiple of our 2009 estimated EPADS of $1.88, providing a PEG ratio (P/E divided by estimated future growth rate) of 0.9X, roughly in line with that of the industry.

Read the full analyst report on BBD