Itau Unibanco (ITUB) Thrives on Buyouts Amid High Expenses

Itaú Unibanco Holding S.A. ITUB is well-poised for revenue growth on the back of increased asset management and credit operations. The company is also expanding its footprint globally through strategic acquisitions. However, elevated expenses, weak credit quality and intense competition remain near-term concerns.

In 2022, the company acquired an 11.4% equity stake in XP Inc. for R$8 billion. Further, Itau Unibanco completed the first phase of acquiring Ideal Holding on Mar 31, 2023, to bolster its investment ecosystem. As of Dec 31, 2023, ITUB’s ownership interest in Zup IT Servicos was 72.51%. The buyout will aid in the development of digital transformation projects and offering functionalities and digital products to its customers. These efforts to diversify product offerings are expected to support top-line growth in the upcoming quarters.

Itau Unibanco displayed growth in revenues from commissions and fees, and insurance operations over the past few years. The metric witnessed a compound annual growth rate (CAGR) of 3.9% over the last four years ending 2023. The uptrend was driven by a rise in asset management, credit operations and guarantees provided, as well as credit and debit cards. With a dominant position in Latin America's asset management and investment banking businesses, the metric is expected to improve in the upcoming quarters. For 2024, management estimates commissions and fees, and results from insurance operations to be up 5-8%.

ITUB’s credit portfolio saw a CAGR of 13% over the last four years (2019-2023). Moreover, the company has been trying to reduce its loan portfolio exposure in higher volatile segments. Such efforts are likely to strengthen its credit portfolio in the future. The company anticipates its credit portfolio to improve by 6.5-9.5% in 2024.

The bank has a strong funding base, evident from the deposit of R$951.35 billion as of Dec 31, 2023, which ensures stability. Therefore, we believe that the company is less likely to default on interest and debt repayments if the economic situation worsens. Such strength supports the maintenance of a healthy credit portfolio.

ITUB currently carries a Zacks Rank #3 (Hold). Shares of the company have gained 29.1% on the NYSE over the past six months compared with the industry’s growth of 16%.


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Despite the above-mentioned tailwinds, Itau Unibanco's general and administrative expenses have seen an uptrend in the past few years. The metric witnessed a CAGR of 3.5% over the last four years (ended 2023). Continuous investment in the bank’s digital transformation and client centricity will likely to keep the expenses elevated, which will hinder the bottom-line growth in the near term. Management projects non-interest expenses to grow 4-7% in 2024.

In 2023, the total non-performing loan ratio increased to 2.8% from 2.3% in 2020. The cost of credit charges witnessed a CAGR of 19.4% over the last four years (ended 2023). The deteriorating economic outlook amid recessionary fears is expected to affect credit quality in the near term. The bank expects costs of credit between R$33.5 billion and R$36.5 billion in 2024.

Itau Unibanco faces fierce competition from large Brazilian and international banks, which has intensified by industry consolidations over the past years. Any potential economic slowdowns in Brazil and Latin America may affect the operational efficiency and profitability of the company.

Stocks to Consider

Some better-ranked bank stocks are Shinhan Financial Group Co. SHG and Banco Macro S.A. BMA

Shinhan Financial Group’s earnings estimates for 2024 have been revised 3.9% upward in the past 30 days. The company’s shares have gained 43.9% over the past six months. At present, SHG sports a Zacks Rank of 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Banco Marco’s 2024 earnings estimates have revised 58.5% upward in the past 30 days. The stock has rallied 151.2% over the past six months. Currently, BMA sports a Zacks Rank #1.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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