BBVA Earnings: Valuation Does Not Reflect Impressive Profitability

Narrow-moat Banco Bilbao Vizcaya Argentaria reported an excellent second quarter of 2024 with net attributable profit reaching nearly EUR 2.8 billion, up 29% quarter over quarter and 37% year over year in constant euros and also 14% ahead of the consensus estimate of analysts polled by the bank. However, the earnings beat was primarily driven by exchange-rate hedges. Operating results were in line with expectations. BBVA's Spanish operation is performing better than expected, and management has slightly increased revenue guidance. BBVA is confident it can replicate its first-half performance in the second half of 2024, implying a net profit of nearly EUR 10 billion, 14%, and consensus. We wholeheartedly agree with management that a valuation equal to its tangible book value falls far short of reflecting the 20% return on tangible equity that BBVA generated for the first half of 2024. We continue to view BBVA as undervalued. We were puzzled by the market's adverse reaction to the results, with the shares trading down nearly 5% on the day.