We are continuing our Hold on Banco Bradesco S.A. (BBD), as well as our $22 target price. On April 16, Bradesco paid a 50% stock dividend, for which all data in this report has been adjusted. Bradesco is expected to report first quarter earnings on April 28. We are retaining our 2008 EPADS estimate at $1.54.
Revenues should benefit from growth in the lending portfolio, though net interest margins are declining and loss provisions should rise. Bradesco reported fourth quarter earnings of R$1,854 million, up 15% from a year ago, but below consensus and our estimate, largely due to comp costs growing more than expected. Other costs were generally well controlled, and the efficiency ratio improved 30 basis points to 41.8%. We believe dividend is safe.
At its current price, Banco Bradesco's ADS are now trading at 13.6X the 2008 consensus earnings estimates and 11.9X the 2009 consensus estimates, with both years well above the industry medians of 10.0X and 8.7X, respectively, based on consensus estimates as shown in the table following. We believe the shares are fairly valued at present.
Banco Bradesco's estimated future growth rate of 11% is less than that of the industry, as is its dividend yield. Furthermore, the company's exposure to the volatile Brazilian economy adds to uncertainties. Our $22 price target represents a 14X P/E multiple of our 2008 estimated EPADS of $1.54.
Read the full analyst report on BBD.
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