Middle Class Expansion And Digital Advances Will Drive Banking Evolution

Key Takeaways

• Digital transformation, AI, and proprietary tech are set to boost Bradesco's efficiency, scalability, and earnings well beyond current analyst consensus.
  
• Expanding digital platforms, financial inclusion, and sector leadership will fuel outsized growth in fee, insurance, and wealth management revenues.
  
• Reliance on physical branches and high fixed costs, combined with digital competition and macroeconomic pressures, threaten Bradesco's margins, flexibility, and long-term earnings growth.

Catalysts

Provides various banking products and services to individuals, corporates, and businesses in Brazil and internationally.

• Analysts broadly agree that Bradesco's digital transformation and efficiency drive will reduce costs and improve net margins, but this view may still underestimate the scale of cost savings and productivity gains possible as generative AI, cloud adoption, and proprietary tech tools accelerate efficiency and allow for scaling services profitably even with significant volume growth, thereby providing stronger upward pressure on future earnings.
  
• Analyst consensus expects fee and commission income to rise from digital platforms and service expansion, yet current results and sustained innovation are pointing to the potential for Bradesco to vastly outpace expectations as digital penetration deepens in underbanked and mass market segments, meaning revenue growth from these sources could be far above current forecasts.
  
• Bradesco's dominant positioning to capture gains from Brazil's expanding middle class-even beyond consensus-positions the bank for multi-year double-digit revenue growth, as rising demand for banking, loans, and insurance products combines with aggressive client acquisition in micro, SME, and agribusiness verticals.
  
• With a well-capitalized balance sheet, advanced risk management and rapid network rationalization, Bradesco is uniquely poised to consolidate share as weaker incumbents struggle, enabling outsized increases in earnings and net interest income through share gains and pricing power.
  
• The bank is set to unlock substantial high-margin growth in health insurance, private pensions, and wealth management as Brazil's aging population and ongoing formalization in financial services spur robust long-term demand-directly supporting higher recurring fee income and structurally improved return on equity.

Banco Bradesco Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Banco Bradesco compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Banco Bradesco's revenue will grow by 26.7% annually over the next 3 years.
• The bullish analysts assume that profit margins will shrink from 23.6% today to 20.2% in 3 years time.
• The bullish analysts expect earnings to reach R$36.1 billion (and earnings per share of R$3.47) by about August 2028, up from R$20.7 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 12.1x on those 2028 earnings, up from 8.1x today. This future PE is greater than the current PE for the US Banks industry at 6.1x.
• Analysts expect the number of shares outstanding to decline by 0.29% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 20.08%, as per the Simply Wall St company report.

Banco Bradesco Future Earnings Per Share Growth

Risks

• The accelerating shift toward digital and mobile banking in Brazil, combined with rapid gains by fintechs and digital-native competitors, poses a long-term risk to Bradesco's revenue growth, as the bank's traditional reliance on a vast physical branch network may become increasingly outdated and structurally costly, therefore compressing net margins.
  
• High fixed costs from an extensive branch and workforce footprint, despite ongoing efforts to optimize the network, create structural operating leverage that could limit Bradesco's ability to flexibly adjust expenses, putting sustained pressure on earnings as efficiency improvements become harder to achieve over time.
  
• Intensifying competition in credit and payments from both fintechs/big techs and other banks, along with lower-for-longer interest rates, threaten to further erode net interest margins and restrict profitability, as seen by management's continued focus on risk-adjusted return and the growing importance of government-backed and lower-spread secured loan portfolios.
  
• Slower loan book expansion, especially in large corporates and segments already facing demand deceleration due to high Selic rates, suggests that Bradesco may struggle to grow top-line revenues in line with system averages, as acknowledged by management's cautious approach and expectations for portfolio growth to revert toward guidance lower than recent historical growth rates.
  
• Persistently challenging macroeconomic and regulatory conditions in Brazil-including political volatility, unpredictable inflation, and rising capital requirements-could increase capital buffers, limit risk appetite, and force more conservative lending or dividend policies, directly impacting Bradesco's ability to sustain or accelerate earnings growth over the long term.

Valuation

• The assumed bullish price target for Banco Bradesco is R$24.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Banco Bradesco's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of R$24.0, and the most bearish reporting a price target of just R$15.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be R$178.5 billion, earnings will come to R$36.1 billion, and it would be trading on a PE ratio of 12.1x, assuming you use a discount rate of 20.1%.
• Given the current share price of R$15.79, the bullish analyst price target of R$24.0 is 34.2% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.