I haven’t been all that positive on BBVA (BBVA) for a while, and COVID-19 certainly hasn’t helped matters. My issue with BBVA was the weak prospect for near-term core profit growth, an issue that the macro impacts of COVID-19 across BBVA’s operating footprint have only exacerbated. At the same time, my concerns about BBVA’s inability to earn out its cost of capital remain, as I see it more likely than not that the bank continues its decade-long run of sub-10% ROEs for the foreseeable future.
While I believe BBVA is an under-earning, lackluster bank, I also believe that every going concern has its fair price. Even by the well below normal valuation standards of banks today, BBVA seems undervalued on the mid-single-digit ROTCE I expect over the next couple of years. While I do expect BBVA to generate some growth over the next decade, that’s actually arguably bullish next to the near-zero growth the bank has delivered since 2006. The good news, if you can call it that, is that even no growth in core earnings between 2019 and 2029 would still support a fair value around $3.50/ADR.
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