XP Analysts Stay On Sidelines Despite Brazilian Brokerage's Bright Prospects

XP Inc XP closed the initial public offering of its Class A common shares at $27 per share in December, and the Brazilian brokerage began trading in the new year at $38.59.

The XP Analysts

Goldman Sachs analyst Tito Labarta initiated coverage of XP with a $40 price target. 

UBS analyst Mariana Taddeo initiated coverage of XP with a Neutral rating with a $42 price target. 

Takeaways On XP 

XP’s competitive advantages are its open platform, strong customer reputation, focus on educating retail investors and different service levels, Labarta said in a Sunday initiation note.

These competitive advantages are “difficult to replicate” and uniquely position XP to gain market share at the cost of Brazil’s large banks, the analyst said. 

The analyst expects XP to grow its assets under custody at a 41% compounded average growth rate from 2019 to 2022, while increasing its market share from 4.5% in 2019 to almost 10% by 2022.
This would generate 37% CAGR in revenues and 38% in EPS.

Labarta, who has a $40 price target for XP, said that the stock’s premium valuation limits its upside.

UBS analyst Taddeo also cited XP’s strengths as its differentiated business model, ability to educate investors and leverage technology and provide high-quality customer service at low fees.

The analyst expects XP to gain market share in retail investment assets under custody.

XP’s growth will also be supported by growth in the investment AUC addressable market, structurally low interest rates and sophisticated retail investors, Taddeo said. 

UBS estimates XP’s AUC CAGR at 36.8% from 2020 to 2024, resulting in an earnings CAGR of 36.4%.

Following the stock’s recent outperformance, these positives are already priced in, the analyst said. 

XP Price Action

XP shares were down 5.26% at $36.21.