Itau BBA sets XP Inc. stock Outperform with $20 target

On Tuesday, Itau BBA initiated coverage on XP Inc. (NASDAQ: NASDAQ:XP) with an Outperform rating and a price target of $20.00. The research firm’s outlook for the company is optimistic, citing strategic shifts that focus on direct client relationships, refining Independent (LON:IOG) Financial Advisor (IFA) partnerships, and new client monetization incentives. These changes are expected to drive mid-term earnings growth despite short-term challenges. According to InvestingPro data, XP’s stock is currently trading at $15.46, with analysis suggesting the stock is undervalued. The company has demonstrated strong momentum with a 30.46% year-to-date return, while management has been actively buying back shares.

XP Inc.’s strategy is seen as a positive step towards achieving earnings growth, with less reliance on the performance of Brazilian markets. However, improvements in these markets would still be beneficial to the company. The resilience of XP’s earnings has been highlighted, especially in the areas of fixed income distribution and balance sheet strength, which have gained prominence as banks reduce their risk exposure. The company maintains a healthy current ratio of 1.25 and has achieved a 14.1% revenue growth in the last twelve months, demonstrating its operational strength.

Itau BBA analysts project a Compound Annual Growth Rate (CAGR) of 16% in earnings for XP Inc. from 2024 to 2027. This growth expectation is accompanied by a forecasted increase in the company’s price-to-earnings (P/E) multiple, from 9x in 2025 to 12x by the end of the same year. The price target of $20.00 per share reflects this anticipated expansion. InvestingPro analysis reveals the company currently trades at a P/E ratio of 10.91x, suggesting attractive valuation levels relative to its growth potential. For deeper insights into XP’s valuation and growth prospects, subscribers can access the comprehensive Pro Research Report, which provides detailed analysis of the company’s fundamentals and market position.

XP Inc. has been identified as a top pick by Itau BBA within the non-bank financials sector. The firm places XP alongside BTG Pactual and ahead of B3 in their preferences for investment. This endorsement underscores the potential seen in XP’s strategic direction and its ability to monetize client relationships effectively. With an overall Financial Health Score of "GOOD" from InvestingPro, and its position as a prominent player in the Capital Markets industry, XP shows promising fundamentals for potential investors.

In other recent news, XP Inc. has been at the center of several significant developments. The company recently responded to allegations made by a short seller, firmly denying claims that questioned its financial health and operational integrity. XP Inc. emphasized its commitment to transparency and regulatory compliance in a statement filed with the U.S. Securities and Exchange Commission. In addition, XP Inc. has been accused by Grizzly Research of operating a Ponzi scheme through its GLADIUS FIM CP IE fund, which the short seller claims is unsustainable and reliant on deceptive financial products. The company has not yet responded to these specific allegations.

Meanwhile, UBS analyst Thiago Batista upgraded XP Inc.’s stock rating from Neutral to Buy, though he lowered the price target to $16.00. Batista’s revised outlook reflects a positive stance on the company’s valuation and strategic shift towards expanding its business-to-consumer operations. Speculation has also arisen regarding a potential negative report from Hindenburg Research, which could further impact investor sentiment. As the situation unfolds, investors are advised to stay informed about these developments, as they could significantly influence XP Inc.’s market perception and financial standing.

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