We are maintaining our Buy on Banco Santander Central Hispano, S.A. (STD), reflecting Santander's low valuation relative to its strong growth prospects vis-a-vis global peers.
Santander reported second quarter net earnings of 2.5 billion, up 24% year over year, and above our estimate due to a better-than-expected control over expenses. We are retaining our EPADS estimates at $2.20 for 2008 and $2.55 for 2009. Results should continue to be driven by strong loan growth, particularly in developing markets, and improved efficiency.
Recent acquisitions will also help, including the UK's Alliance & Leicester, ABN AMRO's Latin American operations, the continental European consumer finance business of the Royal Bank of Scotland (RBS), and certain GE Money units located in Europe and the UK. Santander raised its interim dividend 10%.
At its current price, Banco Santander trades at 7.1X the consensus 2009 earnings estimate, an 18% discount to the industry P/E median (versus a 9% discount at the time of our last report on May 21, 2008). Banco Santander's growth prospects are above average (15% compared to 10% for the industry median), as is its dividend yield (5.6% compared to the industry's 4.1%).
We also recognize that Santander's exposure to Latin America presents it with an above-average risk profile. Our $23 target price represents roughly a 9X multiple of 2009 estimated earnings of $2.55 per share, roughly in line with the industry median.
Read the full analyst report on STD
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