Does Banco Bradesco Deserve a Spot in Your Portfolio?

Investors looking to diversify their portfolios should exercise caution if they are considering adding Brazil-based financial services giant Banco Bradesco (BBD). The stock has grossly underperformed broader indexes, such as the S&P 500, over the last 10 years, burning investor wealth in the process. Read on.

One of the most important concepts for successful investing is portfolio diversification. In the event one has $100 or even $100,000 to invest, one needs to apportion investment capital according to risk appetite and gain exposure to multiple asset classes, such as equities, bonds, gold, real estate, and cryptocurrencies.

Further, one’s stock exposure should include companies across sizes and sectors. For example, a blue-chip large-cap company such as Verizon (VZ) will offer investors a generous dividend yield. In contrast, a growth stock like Roku (ROKU) will help grow wealth at an attractive rate over time.

One can also diversify a portfolio by purchasing shares of companies such as Banco Bradesco (BBD) that have a bulk of their operations in another country, further diversifying overall risk. So, let’s see if Banco Bradesco stock should be part of one’s portfolio right now.

An overview of Banco Bradesco

Brazil-based financial giant, Banco Bradesco is valued at a market cap of $36 billion. The company provides several banking products and solutions to individuals and businesses in Brazil and other international markets.

BBD operates through Banking and Insurance business segments, while providing demand and time deposits, mutual funds, savings deposits as well as overdrafts, credit cards and loans. Banco Bradesco offers primarily leasing, brokerage, investment and private banking, pension plans, capitalization bonds and consortium management services. It also provides auto, health, life and non-life insurance products.

As one of  the largest financial companies in Latin America, Banco Bradesco’s recurring net income in the first half of 2021 stood at $2.31 billion, while its return on equity was also impressive at 18.2%.

With more than $300 billion in total assets, the company’s expanded loan portfolio stood at $131 billion. Its insurance business generated net income of more than $415 million in the first half of 2021 and ended the quarter with $61.8 billion in total assets. Its premium contributions stood at $4.2 billion in the first half of 2021.

What next for Banco Bradesco stock?

Banco Bradesco has grossly underperformed the broader markets over the last decade. The stock has declined by 2.2% in price since October 2011 versus the S&P 500 345% returns. In the last five years, the stock is down 14% compared to index returns of 122%.

The company’s sales and earnings have fallen over the past few years, which has also negatively impacted its stock price.

However, analysts tracking the stock expect Banco Bradesco sales to rise by a marginal 0.7% to $19.49 billion in 2021 and by 8% to $21.05 billion in 2022. Its adjusted earnings per share is also forecast to rise from $0.39 in 2020 to $0.59 in 2022.

Given its $36 billion market cap, Banco Bradesco stock is trading at a forward price to sales multiple of less than 2x and a price to earnings forecast of just 7.3x.

The final verdict

We can see that Banco Bradesco stock is trading at an attractive multiple given it also pays investors a 2.84% dividend yield. So, if one is seeking an undervalued stock, this Brazilian company may be a good bet. But it has underperformed the broader markets over a long period of time and carries significant risks.

Wall Street expects Banco Bradesco stock to rise to $5.83 over the next 12-months, which is 57% higher than its current price. After accounting for its dividend yield, total returns may be closer to 60%.

BBD shares rose $0.02 (+0.54%) in after-hours trading Tuesday. Year-to-date, BBD has declined -26.90%, versus a 17.11% rise in the benchmark S&P 500 index during the same period.

About the Author: Aditya Raghunath

Aditya Raghunath is a financial journalist who writes about business, public equities, and personal finance. His work has been published on several digital platforms in the U.S. and Canada, including The Motley Fool, Finscreener, and Market Realist.


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