Inter’s stock rose by 5.4% today after JP Morgan upgraded its recommendation from ‘neutral’ to ‘buy’ – following a nearly 20% correction in the stock over the past 30 days.
Despite not believing that the bank will achieve its ROE target in its 60-30-30 plan – 60 million customers, 30% ROE, and 30% efficiency ratio by 2027 – JP Morgan increased the price target from $7.50 to $8.50, a potential upside of 30% from the current price.
Analyst Yuri Fernandes stated that Inter is expected to continue increasing its profitability through repricing and new credit products, as well as improving operational leverage with revenues growing at a CAGR of 38% between 2024 and 2026 – while expenses are not expected to increase at a double-digit rate during this period.
JP Morgan predicts that Inter’s earnings per share will grow at a compounded annual growth rate of around 40% by 2027. The bank sees Inter trading at 10x the estimated earnings for 2025 and 1.7x book value for this year.
Despite optimism about the thesis, JP Morgan does not see Inter reaching the 30% ROE guidance set for 2027.
“In our model, we incorporate a 20% ROE for Inter in 2027,” wrote the analyst. “Although the plan was devised before the introduction of new products, we still find it challenging to reach these numbers.”
One of these new products is PIX Finance, which allows the use of the card to make payments via PIX for individuals and businesses, and has been a major focus for Inter.
The bank estimates that the product will reach R$ 700 million by the end of the year and R$ 1.5 billion next year.
“We estimate this could be a product with an ROE of 70% to 80%, which is great, but given the small size of this portfolio, it is likely to be less significant for Inter’s expected profitability,” Inter wrote. “It is not a miraculous solution.”
JP Morgan also projects that the bank will have slightly higher losses in PIX Finance compared to credit cards – 6%, up from the current 5.5%.
“While we expect higher provisions, we also expect margins to offset, and we anticipate that the risk-adjusted NIM will continue to expand sequentially.”
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Arwen Volkov, A graduate of the University of St. Gallen in Switzerland with a degree in International Finance, Arwen specializes in sustainable finance and green investments. She began her career at an investment bank in London, where she developed financing models for environmentally friendly projects. Known for her analytical and strategic thinking skills, Arwen is a sought-after financial consultant. In her spare time, she mentors fintech startups, contributing to their growth strategies. She is also a nature enthusiast and an amateur photographer.
