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Like many Latin American stocks, Banco de Chile (BCH - Free Report) has sold off since late July. But business has been exceptionally strong for Chile's biggest bank, and analysts have been revising their estimates significantly higher over the last several months.

It is a Zacks #2 Rank (Buy) stock.

The company also pays a dividend that yields a solid 4.0%. Valuation is attractive too, with shares trading at just 9.5x 12-month forward earnings.

Second Quarter Results

Banco de Chile reported excellent results for the second quarter of 2011. Earnings per share came in at $1.68, beating the Zacks Consensus Estimate of $1.60. It was a 17% increase over the same quarter in 2010.

Total operating revenues rose 10%, driven by a 19% increase in net interest income as the net interest margin expanded 25 basis points to 5.07%. The loan portfolio grew 18% as commercial, residential and consumer loans each experienced double-digit increases.

Credit quality was strong too. The amount of past due loans fell 10 basis points to 0.58% while charge-offs declined 35 basis points to 0.87% of average loans. This led to an 11% decline in provisions for loan losses.

Strong Growth Ahead

Following better than expected Q2 results, analysts revised their earnings estimates significantly higher for both 2011 and 2012, sending the stock to a Zacks #2 Rank (Buy). As you can see in the Price & Consensus chart, analysts have been consistently raising their estimates over the last several months:

BCH: Banco de Chile

Based on consensus estimates, analysts expect strong growth to continue over the next two years. The Zacks Consensus Estimate for 2011 is $6.64, representing 69% growth over 2010 EPS. The 2012 consensus estimate is currently $7.34, corresponding with 10% EPS growth.

Solid Income

In addition to strong earnings growth, Banco de Chile offers investors a dividend that yields a stellar 4.0%. Its payout ratio is 47%, which leaves it with some wiggle room to raise its dividend in the future, especially if EPS grows as projected.

Attractive Valuation

Shares of Banco de Chile have sold off along with most Latin American stocks recently. This has led to some compelling valuations.

The stock trades at just 9.5x 12-month forward earnings, a discount to its historical multiple of 12.4x. Its price to book ratio of 2.7 is also below its historical median of 3.1.

The Bottom Line

With rising earnings estimates, strong growth projections and a 4.0% dividend yield, Banco de Chile looks very attractive at just 9.5x earnings.

Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research and Co-Editor of the Reitmeister Value Investor.

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