On Thursday, KeyBanc Capital Markets adjusted its outlook on shares of Nu Holdings (Nubank) (NYSE: NYSE:NU), raising the price target to $17 from $15, while maintaining an Overweight rating on the stock. The adjustment reflects a response to the company's third-quarter financial performance and growth expectations.
Nubank's third-quarter revenue and gross profit fell slightly short of KeyBanc's projections and more notably below the consensus on Wall Street. Despite this, the bank's adjusted operating income was lower than expected, while its adjusted net income surpassed both KeyBanc's and Street estimates. The annualized adjusted return on equity (ROE) for the quarter remained steady at 33%, consistent with the previous quarter's performance.
The results were considered "mixed" by the analyst, who noted that the quarter was particularly complex due to a variety of factors, including increased credit origination activity paired with a decrease in net interest margin (NIM). The bank's financial report required additional explanations due to the numerous elements affecting its performance.
However, KeyBanc highlighted three positive takeaways from Nubank's quarterly report: credit origination activity grew quarter-over-quarter and exceeded expectations; early-stage non-performing loans (NPLs) showed improvement from the previous quarter; and deposit growth surpassed forecasts. While there are other aspects of the report that could be debated, KeyBanc maintains a constructive view on Nubank's stock.
The raised price target to $17 is based on a combination of upwardly revised rate expectations, higher estimates, and confidence in the bank's execution of key initiatives. These initiatives include the expansion of secured credit and the growth of its deposit franchise. The price target represents 9.7 times the forecasted FY25 gross profit or 23.3 times the projected 2025 adjusted earnings per share (EPS).
In other recent news, Nu Holdings Ltd (BVMF:ROXO34)., also known as Nubank, demonstrated impressive financial growth in its Third Quarter 2024 Earnings Call. The company reported a significant expansion of its customer base to 110 million, a 56% increase from two years ago, primarily driven by the Brazilian market.
Nubank's revenue also saw a substantial rise, reaching $2.9 billion, a 56% year-over-year increase, while net income stood at $553 million, resulting in a notable 30% annualized return on equity.
In addition to these financial developments, the digital financial services firm highlighted its strategic initiatives. The company has expanded its consumer finance portfolio to $20.9 billion, with credit cards and lending up by 33% and 97% year-over-year, respectively. Total (EPA:TTEF) deposits also increased, reaching $28.3 billion, marking a 60% year-over-year rise.
Nubank also announced the integration of a new telecom service, Nu sell, and a partnership with Claro in Brazil. Despite some challenges, such as a slight decline in net interest income growth and credit card purchase volume, the company maintains a strategic focus on high returns on equity and secure lending practices. These recent developments underscore Nubank's commitment to long-term growth and diversification of its revenue streams.
InvestingPro Insights
Recent data from InvestingPro adds context to KeyBanc's analysis of Nu Holdings. The company's market capitalization stands at $74.91 billion, reflecting its significant presence in the fintech sector. Nu's impressive revenue growth of 86% over the last twelve months aligns with KeyBanc's positive outlook on the company's expansion initiatives.
InvestingPro Tips highlight Nu's strong performance, noting that the company has seen a high return over the last year, with a substantial 77.12% price total return. This robust performance supports KeyBanc's decision to maintain an Overweight rating. Additionally, Nu is trading near its 52-week high, with its current price at 96.84% of the 52-week peak, suggesting continued investor confidence.
While KeyBanc raised its price target to $17, it's worth noting that the average analyst fair value target is $15.5, according to InvestingPro data. Investors seeking a more comprehensive analysis can access 10 additional InvestingPro Tips for Nu Holdings, providing deeper insights into the company's financial health and market position.
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