Itaú Unibanco: Reducing Our Fair Value Estimate to $5.70 per ADR Share

We are lowering our fair value estimate for no-moat Itaú Unibanco to $5.70 per ADR share from $6.30. Functionally, all of the decrease comes from foreign exchange movements since our last model update as the Brazilian real has fallen sharply against the dollar, particularly since the end of May. After reaching a high of 13.75% in 2023, the benchmark rate in Brazil is declining, as inflation is well below its high. On the other hand, expectations for interest rate cuts in the US have fallen significantly in 2024. This divergence in interest rate policy has helped place pressure on the Brazilian real relative to the dollar. Aggressive spending plans by the current administration have also created deficit concerns for Brazil, further adding to the real’s weakness.