Itau: Increasing our Valuation to $6.30 From $5.90 on Higher Loan Growth and Lower Credit Costs

We are increasing our fair value estimate for Itau to $6.30 per ADR share from $5.90. Around $0.20 of the increase is from higher medium-term loan growth projections. Brazil will likely achieve a soft landing from the elevated inflation in 2022 and early 2023. Inflation has fallen into the medium to low-single digits, allowing the Brazilian central bank to begin cutting interest rates. Brazil's benchmark reduced to 11.25% from a high of 13.75% last year. With inflation remaining relatively tame in Brazil, further interest rate cuts are expected. The combination of falling interest rates and a surprisingly resilient labor market has raised prospects for better loan growth in Brazil, with Itau well-positioned to take advantage, particularly considering the poor performance of some of its peers.