JPMorgan Getting Bullish On Santander, Upgrades To Overweight

JPMorgan upgraded Banco Santander, S.A. (ADR) SAN to Overweight on valuation and potential for above average earnings. The brokerage also raised its price target to €5.20 from €4.20, offering about 16 percent potential upside.

According to a note from Sofie Peterzens, SAN is attractively valued, and currently trading at historical lows. The analyst said the stock is trading at 7.6x PE, 0.9x P/NAV for a 12.3 percent RoNAV and 3.5 percent cash dividend yield in '18.

In addition, the analyst noted high single-digit revenue growth in LatAm (ex Brazil),combined with focus on costs, are the key drivers for her average 13 percent annual EPS growth estimate in 2016-2018e and the 12.3 percent estimate in RoNAV in 2018. The analyst said this is "impressive" in this low growth/rate environment.

"Should SAN deliver on its <45% C/I target in ‘18e, we see ~11% upside to our ‘18e EPS," Peterzens wrote in a note.

The analyst continued that though the macroeconomic environment in Brazil remains challenging, Peterzens see upside to her and consensus estimates for Brazil from the following three factors.

"1) SAN delivering on its guidance of net income growth ex FX in ‘16e vs. consensus-28% yoy (incl. FX)"

2) "the CB of Brazil cutting the SELIC rate to 12.75% by Dec-16e from 14.25% currently (JPMe ~5% EPS upside in ‘17e, all else equal)"'

3) "CoR remaining stable at ~500bps yoy vs. JPMe of 564bps in ‘16e(~4% EPS upside in ‘16e)"