Banco Bilbao: Valuation Raised by 26% Due to Lower Turkish Risk and Resilient Net Interest Margin

We increase our fair value estimate for narrow-moat Banco Bilbao Vizcaya Argentaria, or BBVA, by 26% to EUR 14.50 from EUR 11.50, primarily due to a 1% reduction in our estimated cost of capital to 11%. This adjustment reflects a lower country risk premium for BBVA's Turkish business as we see signs of inflation normalization and anticipate a gradual economic recovery. However, we have raised our Morningstar Uncertainty Rating to High from Medium as we are concerned about the impact of higher tariffs on the Mexican economy. BBVA derives over 50% of its profits from Mexico. BBVA’s bid for Spanish rival Banco Sabadell complicates the picture further.