On Nov 6, 2013, we reiterated our long-term recommendation on
Itau Unibanco Holding S.A.
) at Neutral based on the company's diversified product mix,
increasing operating revenues and expanded credit portfolio.
Moreover, improvement in the Brazilian economy would act as a
catalyst. However, increasing competition and undisciplined
expense management pose risks.
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On Oct 30, 2013, Itau Unibanco reported third-quarter 2013
recurring earnings of R$4.0 billion ($1.75 billion), up 11.1%
sequentially. Including non-recurring items, Itau Unibanco's
third-quarter 2013 net income came in at R$3.99 billion ($1.74
billion), up 11.5% sequentially.
The sequential increase was primarily attributed to reduced
expenses for allowance of loan and lease losses and increased
managerial financial margin along with higher banking service
fees and income from banking charges. However, elevated
non-interest expenses were the headwinds.
The economy in Brazil and the domestic market of Itau Unibanco,
is recovering at a sluggish pace. Based on the economy
improvement to date in 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
three 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 2.2% to $1.39 per share, over the last 30
days. For 2014, the Zacks Consensus Estimate has moved up 3.3% to
$1.55 per share, over the same time frame. Hence, the company
carries a Zacks Rank #2 (Buy).
Other Foreign Banks to Consider
Some other foreign banks worth considering include
Deutsche Bank AG
Westpac Banking Corp.
) with a Zacks Rank #1 (Strong Buy), while
Bank of Montreal
) carries a Zacks Rank #2 (Buy).