Wednesday, March 16, 2016

Seeking Alpha: Itau Unibanco Doing A Solid Job Of Juggling Chainsaws

I wasn't very keen on Itau Unibanco (NYSE:ITUB) back in June of 2015, as I thought there was more risk than management was acknowledging of the Brazilian economy getting worse and taking credit quality with it. While the shares have staged an impressive rebound from their January lows (up about 66%), the shares are still down about 15% from that last piece as the Brazilian economy has indeed been weaker.

I'm not taking a victory lap on that call - predicting that a Brazilian stock would be weaker over the past year or so has been about as hard as hitting the ocean with a brick. Still, I think management at Itau should be credited for managing the situation as well as they have - the company's non-performing loans are pretty well-covered, and though the next couple of years will likely be sticky, I think the company has been managing this downturn well and will emerge as a strong player in a large economy that is still under-banked.

I think Itau Unibanco's ROE could threaten the mid-teens during this downturn, but I think 20% or higher is still viable down the road. Discounting back my cash earnings estimates gives me a fair value of about $10 today, and while that doesn't look so impressive relative to a $9 price on the ADRs, I use a hefty discount rate (mid-teens) that should account for a lot of the risk.

Read the full article here:
Itau Unibanco Doing A Solid Job Of Juggling Chainsaws

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