On Aug 8, 2013, we reiterated our long-term recommendation on
Itau Unibanco Holding S.A.
) at 'Neutral' based on the company's diversified product mix and
expanded credit portfolio. Moreover, the improving economy in
Brazil would act as a catalyst. However, increasing competition
and undisciplined expense management pose risks.
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On Jul 31, 2013, Itau Unibanco reported second-quarter 2013
recurring earnings of R$3.6 billion ($1.74 billion), up 2.9%
sequentially. Including non-recurring items, Itau Unibanco's
second-quarter 2013 net income came in at R$3.58 billion ($1.73
billion), marginally higher than the prior-quarter earnings of
R$3.47 billion ($1.73 billion).
The sequential increase was primarily attributed to stable
expenses for allowance of loan and lease losses and increased
managerial financial margin with clients along with higher
banking service fees and income from banking charges. However,
decreased financial margin with market and elevated non-interest
expenses were the headwinds for Itau Unibanco.
The economy in Brazil, the domestic market of Itau Unibanco, is
recovering at a sluggish pace. Based on the economy improvement
in the first half of 2013, the Brazilian GDP is expected to be
2-2.5% in 2013, higher than 2012. Such progress will aid in
improving the company's business prospects.
Though provision for loan and lease losses decreased in the first
two quarters of 2013 for Itau Unibanco, it has been increasing
since the last 4 years with an elevated level of net charge-offs.
Notably, for the year 2013, the company expects expenses for
provision for loan and lease losses to range between R$19 billion
($9.5 billion) and R$22 billion ($11.0 billion).
Following the earnings announcement, the Zacks Consensus Estimate
for 2013 has gone up 0.7% to $1.38 per share, over the last 7
days. For 2014, the Zacks Consensus Estimate has moved up 0.6% to
$1.61 per share, over the same time frame. Hence, the company
carries a Zacks Rank #3 (Hold).
Major Foreign Banks to Consider
Some better performing foreign banks include
BBVA Banco Franc
) with a Zacks Rank #1 (Strong Buy), while
Mitsubishi UFJ Financial Group, Inc.
) carry a Zacks Rank #2 (Buy).