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On Friday, UBS analyst Thiago Batista revised his outlook on XP Inc. (NASDAQ: NASDAQ:XP), upgrading the company's stock rating from Neutral to Buy, despite lowering the price target to $16.00 from the previous $19.00. The adjustment in rating reflects a positive stance on the company's valuation, which Batista believes has fully factored in the challenging macroeconomic conditions in Brazil. Over the last twelve months, XP Inc. shares have experienced a significant decline, dropping approximately 50% in US dollars, according to InvestingPro data. The company maintains a strong financial health score of 2.62 (GOOD), despite the challenging market conditions.
Batista noted that XP Inc. is currently trading at roughly 8.2 times its estimated 2025 earnings and 1.9 times its projected 2025 price-to-book value, which is near historical lows and below the valuations of both local and international peers. Current InvestingPro data shows the company trading at a P/E ratio of 8.87x with a PEG ratio of 0.46, suggesting undervaluation relative to growth prospects. He pointed out that the company's recent strategic shift towards expanding its business-to-consumer (B2C) operations is seen as a positive move that could allow XP Inc. to better manage investment allocation and improve the consumer experience. InvestingPro subscribers can access 8 additional valuable insights about XP's valuation and growth prospects.
The UBS analyst also suggested that XP Inc.'s potential changes in distribution might enhance its long-term net margin, acknowledging that the company's business model tends to have more cyclicality, implying higher fixed costs. The reduction in the price target is attributed to a combination of factors, including UBS's more devalued foreign exchange rate forecast for the Brazilian real against the US dollar (R$/US$ of 6.0 from 5.7), an increase in the cost of equity assumption (15.5% from 15.0%), and a downward revision in earnings estimates by 7% for the years 2025-26.
The upgrade comes at a time when investors are closely monitoring the performance of companies operating in challenging economic environments. XP Inc.'s efforts to adapt its strategy and the potential for improved margins are central to the analyst's more optimistic view on the stock's future performance. Despite the lowered price target, the upgrade to a Buy rating indicates a belief in the company's resilience and ability to navigate through the tough macroeconomic landscape in Brazil.
In other recent news, XP Inc. has been the center of attention due to two significant developments. Firstly, the company's shares experienced turbulence due to rumors of a potential negative report from Hindenburg Research, a renowned short-selling firm. The rumors, sparked by images of unpublished documents on Hindenburg's website, suggested a possible negative impact on XP's financial performance. This speculation was further fueled by allegations of increasing lawsuits in Brazil related to XP's business practices and the entity Gladius, which constitutes a significant portion of XP's revenue and income.
Additionally, XP Inc. has authorized a new share repurchase program, allowing the company to buy back up to R$1.0 billion of its Class A common shares. The repurchases, which could occur on the open market or through privately negotiated transactions, are expected to be funded by the company's existing cash reserves. The company's board has also given approval for management to engage a broker to execute the repurchases.
These recent developments come as Brazilian financial institutions, including XP, revise their forecasts in response to the country's central bank's amplified monetary tightening measures. Analysts from firms such as JP Morgan and UBS BB have adjusted their predictions for the Selic benchmark rate, reflecting the ongoing financial climate. As these situations continue to unfold, investors are advised to closely monitor the developments.
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