Santander Brazil stock upgraded by BofA, strong earnings expected

On Friday, Banco Santander (BME:) Brasil SA (SANB11:BZ) (NYSE: BSBR) received an updated stock rating from BofA Securities. The financial institution’s rating was raised from Underperform to Neutral, with a new price target set at R$32.00, up from the previous R$29.00. This adjustment reflects a more favorable outlook for the bank’s performance in the coming year.

The upgrade comes after a period of earnings contraction for Santander Brasil, with a significant downturn of approximately 40% from 2021 levels, which brought returns on equity (ROE) to historical lows—11.2% down from 21.1%. Despite this decline, the bank is anticipated to experience a substantial recovery in its earnings.

BofA Securities anticipates that Santander Brasil will deliver strong earnings growth in 2024, projecting an increase of 42% from the previous year. This growth is expected to surpass that of its peers, which is estimated at around 10%. The forecasted rise in net income is attributed to a normalization of Market Net Interest Income (NII) in a lower interest rate environment and an expansion of Client NII as loan growth accelerates.

While the bank’s earnings are poised for growth, this is predicted to be partially offset by a higher effective tax rate, following tax credits received in 2023. Despite this, the overall outlook remains positive, with expectations for the bank’s ROE to improve to 15.0%, signifying a recovery from the previous slump.

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