Regional Banking company Banco Bradesco is taking Wall Street by surprise today, falling to $3.62 and marking a -5.9% change compared to the S&P 500, which moved 1.0%. BBD is -27.26% below its average analyst target price of $4.97, which implies there is more upside for the stock. As such, the average analyst rates it at buy. Over the last year, Banco Bradesco Sa shares have outstripped the S&P 500 by 28.6%, with a price change of 8.8%.
Banco Bradesco S.A., together with its subsidiaries, provides various banking products and services to individuals, corporates, and businesses in Brazil and internationally. The company is part of the financial services sector, alongside a staggering variety of banking, mortgage, insurance,and credit service companies. If there is one common denominator among all companies in the sector, it’s that they are all dedicated to maintaining and developing new systems for the storage and transfer of value and risk.
Banco Bradesco's trailing 12 month P/E ratio is 7.9, based on its trailing Eps of $0.46. The company has a forward P/E ratio of 6.5 according to its forward Eps of $0.56 -- which is an estimate of what its earnings will look like in the next quarter. The P/E ratio is the company's share price divided by its earnings per share. In other words, it represents how much investors are willing to spend for each dollar of the company's earnings (revenues minus the cost of goods sold, taxes, and overhead). As of the third quarter of 2022, the financial services sector has an average P/E ratio of 13.34, and the average for the S&P 500 is 15.97.
To better understand BBD’s valuation, we can divide its price to earnings ratio by its projected five-year growth rate, which gives us its price to earnings, or PEG ratio. Considering the P/E ratio in the context of growth is important, because many companies that are undervalued in terms of earnings are actually overvalued in terms of growth.
Banco Bradesco’s PEG is 4.77, which indicates that the company is overvalued compared to its growth prospects. Bear in mind that PEG ratios have limits to their relevance, since they are based on future growth estimates that may not turn out as expected.
To understand the company's long term profitability and market position, we can analyze its operating margins, which are the ratio of its net profits to its revenues. Over the last four years, Banco Bradesco's operating margins have averaged 21.8% and displayed a mean growth rate of 79.5%. These numbers show that the company may not be on the best track.
To deepen our understanding of the company's finances, we should study the effect of its depreciation and capital expenditures on the company's bottom line. We can see the effect of these additional factors in Banco Bradesco's free cash flow, which was $-169,241,153,000.00 as of its most recent annual report. The balance of cash flows represents the capital that is available for re-investment in the business, or for payouts to equity investors as dividends. The company's average cash flow over the last 4 years has been $-100,200,399,750.00 and they've been growing at an average rate of -40.7%. BBD's weak free cash flow trend shows that it might not be able to sustain its dividend payments, which over the last 12 months has yielded 13.5% to investors. Cutting the dividend can compound a company's problems by causing investors to sell their shares, which further pushes down its stock price.
Value investors often analyze stocks through the lens of its Price to Book (P/B) Ratio (its share price divided by its book value). The book value refers to the present value of the company if the company were to sell off all of its assets and pay all of its debts today - a number whose value may differ significantly depending on the accounting method. Banco Bradesco's P/B ratio of 0.2 indicates that the market value of the company is less than the value of its assets -- a potential indicator of an undervalued stock. The average P/B ratio of the Financial Services sector was 1.95 as of the third quarter of 2022.
Since it has a very low P/E ratio, an exceptionally low P/B ratio, and a regular stream of negative cash flows with a downwards trend, Banco Bradesco is likely fairly valued at today's prices. The company has poor growth indicators because of an inflated PEG ratio and decent yet inconsistent operating margins that are growing. We hope you enjoyed this overview of BBD's fundamentals. Be sure to check the numbers for yourself, especially focusing on their trends over the last few years.
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