Banco Bradesco Earnings: Surprisingly Weak Results on Unexpectedly High Credit Costs

No-moat-rated Banco Bradesco reported weak fourth-quarter earnings as surprisingly high credit costs led to a decline in earnings. The bank’s net revenue decreased 1.2% from last year to BRL 29.9 billion. Meanwhile, recurring net income rose 80% from last year but fell 37.7% from last quarter to BRL 2.88 billion. These results translate to a return on average equity of 6.9%, well below the firm’s historical average. Despite these weak results, our thesis for the bank remains largely unchanged, and as we incorporate these results, we do not plan to materially alter our fair value estimate of $3.70 per ADR share for Banco Bradesco. Following the market’s negative reaction to earnings, we see the shares as undervalued.