6 Reasons Why Itau Unibanco (ITUB) Stock is Worth Betting on
Itau Unibanco Holding S.A.’s ITUB financials are expected to get continuous support from a strong network franchise, strategic buyouts, solid funding base, and growth in revenues from commissions and fees. Hence, it seems to be a wise idea to invest in ITUB stock now, given its solid fundamentals and decent growth prospects.
The Zacks Consensus Estimate for ITUBs' earnings has been revised 1.4% and 1.3% north for 2023 and 2024, respectively, over the past 30 days. This shows that analysts are optimistic regarding the company’s earnings prospects. It currently carries a Zacks Rank #2 (Buy).
In this year so far, the stock has gained 12.5% compared with the industry's growth of 8.6%.
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Mentioned below are a few factors that make ITUB a must-buy stock now.
Revenue Growth: Itau Unibanco has displayed growth in revenues from commissions and fees, and results from insurance operations. The uptrend over the years was largely due to a rise in asset management, credit operations and guarantees provided as well as credit and debit cards.
Further, given its preeminent position in the asset management and investment banking businesses in Latin America, and growth opportunities in the insurance space, the metric is likely to improve in the upcoming period. For 2023, management estimates commissions and fees, and results from insurance operations to be up 5-7%.
Solid Funding Base: ITUB has a strong funding base, evident from the deposit of R$923.28 billion as of Jun 30, 2023. Also, its times interest earned ratio of 1.4 for second-quarter 2023 has been unchanged from first-quarter 2023. Hence, we believe, it is less likely to default interest and debt repayments if the economic situation worsens.
Moreover, robust funding position of the company helps it to maintain a healthy credit portfolio (including financial guarantees provided and corporate securities). The credit portfolio has been rising over the years. Also, it has been trying to reduce its loan portfolio exposure in higher volatile segments with an aim to strengthen credit portfolio. Management anticipates its credit portfolio to improve by 6-9% in 2023.
Strong Network Franchise: As a premier banking brand in Brazil, Itau Unibanco has a large branch network, with branches concentrated in Southeast Brazil. Moreover, as part of its internationalization strategy, the company has consolidated its presence in other countries of the Southern Cone — Argentina, Chile, Paraguay and Uruguay — with branches positioned in regions, where activity levels are high.
ITUB had also expanded its presence in Colombia and Panama, followed by the merger between Banco Itaú Chile and CorpBanca in April 2016.
Strategic Acquisitions: Management has been expanding operations in Brazil and abroad on the back of strategic acquisitions. In 2022, the company inked a deal to acquire Ideal Holding to bolster its investment ecosystem and completed the first phase of the deal on Mar 31, 2023.
In 2020, it concluded the first phase of acquiring a 52.96% stake in Zup IT Servicos for around R$293 million, aiding development of digital transformation projects, and offering functionalities and digital products to its customers. Thus, via such inorganic efforts to diversify its product mix, it is expected to support ITUB’s top line in the upcoming quarters.
Technological Advancements: Itau Unibanco’s ongoing investments in technology will contribute to improve processes, reduce costs and increase productivity gains. It had initiated a transformational strategy, iVarejo 2030, at its retail operations unit. It has adopted the phygital and omnichannel approach as well as the e-Commerce model to improve in-person services and revamp its branch networks.
Through these efforts, it targets to increase digital sales in the long term. The company is also modernizing its banking legacy systems and migrating services to cloud, making it more efficient and competitive in its domain.
Superior Return on Equity (ROE): Itau Unibanco has an ROE of 17.71%, higher than the industry average of 12.45%. This shows that it reinvests its cash more efficiently than its peers.
Other Stocks Worth Considering
A couple of other top-ranked stocks from the finance space are Morgan Stanley MS and Tradeweb Markets Inc. TW. MS and TW currently carry a Zacks Rank #2 each. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Over the past 30 days, the Zacks Consensus Estimate for Morgan Stanley’s current-year earnings has been unchanged. Over the past six months, the MS stock has decreased 3.2%.
Earnings estimate for TW has also been unchanged for the current year over the past 30 days. Over the past six months, TW’s shares have gained 6.9%.
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