We issued an updated research report on
Itau Unibanco Holding S.A. ( ITUB Quick Quote ITUB - Free Report) on Dec 28. The company’s diversified and strong funding base, along with declining debt level, keeps it well poised for growth. Also, inorganic growth strategies aid in expanding footprint and bolster its performance.
However, expenses are rising owing to investment in digitization, which might hurt profitability. Also, competition from other big Brazilian banks remains a concern.
The company’s Zacks Consensus Estimate for the current year has been revised nearly 3% upward over the past 30 days. The company currently carries a Zacks Rank #3 (Hold).
Shares of Itau Unibanco have lost 33% year to date compared with the 15.1% decline of the
Itau Unibanco’s strategy to expand its operations in Brazil and internationally is encouraging. Also, ongoing investments in technology will aid in the improvement of processes, reduce costs and increase productivity gains. In March 2020, the company acquired Zup IT Servicos, aiding the development of digital transformation projects, is and offering new functionalities and digital products to its customers.
Further, the company’s benefits from diversified and strong funding base, as is evident from rising deposits and assets under administration. Notably, it had a debt level of $113.7 billion as of Sep 30, 2020, which has been decreasing over the past few quarters. Therefore, we believe Itau Unibanco has less likelihood of default of interest and debt repayments if the economic situation worsens.
Also, Itau Unibanco’s credit quality has been improving. Its total delinquency ratio (transactions more than 90 days overdue) has been shrinking for the past three years. We believe that the company is poised to improve the default rate due to its strategy that is largely focused on change to a more conservative credit profile of its portfolio.
However, general and administrative expenses have flared up over the past few years. Moreover, the company’s ongoing investment in digitization of its services and focus to enhance customers’ satisfaction will likely keep the expenses elevated. Continuation of such a trend will pose a hindrance to bottom-line growth in the near term.
Also, Itau Unibanco faces intense competition from other large Brazilian and international banks. This, along with new regulations issued by the National Monetary Council, which facilitates the customers’ ability to switch business between banks, is likely to have detrimental effects on the lending volumes and margins of the company.
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