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Itau Unibanco Rides on Inorganic Strategies, Expenses a Woe

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Itau Unibanco Holding S.A.’s (ITUB - Free Report) organic and inorganic growth strategies are likely to bolster its performance. However, higher expenses remain a concern.

Also, the company’s second-quarter 2017 earnings grew 10.7% year over year. Results reflected a strong balance sheet position and slightly lower operating revenues.

Shares of Itau Unibanco have gained 21.5% year to date, outperforming the 16.4% rally of the industry.

The company’s Zacks Consensus Estimate for the current year has been revised nearly 1% upward over the last 30 days. The stock currently carries a Zacks Rank #3 (Hold).

Itau Unibanco’s strategy to expand its operations in Brazil and internationally is encouraging. In 2016, the company had undertaken an acquisition spree which is expected to boost its performance and support growth in the long term.

Further, the company’s organic growth story remains impressive. Its loans and deposit balances have been growing consistently over time. Also, Itau Unibanco seeks to diversify its loan portfolio by focusing on origination of lower risk products.

However, the company’s expenses have continued to rise over the last few years, with the trend continuing in first six months of 2017 as well. Such a trend, despite initiatives to control expenses, is likely to deter bottom-line growth. Management expects non-interest expenses to increase in the range of 1.5-4.5%.

Also, Itau Unibanco faces intense competition from other large Brazilian and international banks. This, along with new regulations issued by the National Monetary Council that facilitates the customers’ ability to switch business between banks, is likely to have detrimental effects on the lending volumes and margins of the company.

Stocks to Consider

Some better-ranked stocks in the finance space are ING Group, N.V. (ING - Free Report) , KB Financial Group Inc (KB - Free Report) and Shinhan Financial Group Co Ltd (SHG - Free Report) . All these stocks sport Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

ING Group’s Zacks Consensus Estimate witnessed an upward revision of 4.1% for current-year earnings, over the past 30 days. Also, its shares have gained 57.9% in the past 12 months.

KB Financial witnessed Zacks Consensus Estimate for current year earnings revise 18.9% upward, over the last 30 days. Its share price has increased 48.6% in the past year.

Shinhan Financial’s Zacks Consensus Estimate for the current year was revised 9.7% upward in the last 30 days. The company’s share price has increased 28.8% in a year’s time.

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