Brazil's Crunch Will Hinder Luxury Sales In São Paulo

Key Takeaways

• Elevated interest rates, weak wage growth, and economic inequality threaten demand and shrink the addressable market, constraining sales and revenue growth potential.
  
• Heavy reliance on São Paulo's premium market, rising development costs, and shifts to alternative housing models expose Even to sales, margin, and earnings risks.
  
• Strategic focus on high-end São Paulo projects, prudent capital management, and sustained demand from affluent buyers underpin Even's resilience and margin stability despite tighter credit conditions.

Catalysts

Operates as a real estate developer and builder in Brazil.

• Sustained high interest rates and increasingly restrictive credit conditions in Brazil are expected to erode mortgage accessibility and affordability, directly depressing demand for Even's upper-middle and high-end developments and reducing both future revenues and sales velocity.
  
• Ongoing economic inequality and weak wage growth, coupled with inflationary pressure on household budgets, will likely leave much of the middle-class unable to afford premium properties, shrinking Even's addressable market, which will constrain long-term unit sales and limit top-line growth.
  
• A heavy land bank concentration in São Paulo's premium segments exposes the company to the risks of local economic stagnation or market saturation, putting Even at risk of declining sales, inventory build-up, and deteriorating revenue streams in the years ahead.
  
• Cost pressures from anticipated tighter environmental regulations and climate-related construction challenges, such as increased flood risks or higher input costs for sustainable materials, are set to drive up development expenses and compress net margins over the coming years.
  
• The growing popularity of alternative housing models-including rental, co-living, and urban densification-threatens to undermine demand for traditional for-sale luxury units, jeopardizing Even's revenue pipeline and its ability to sustain historical earnings growth.

Even Construtora e Incorporadora Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Even Construtora e Incorporadora compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Even Construtora e Incorporadora's revenue will grow by 6.7% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 3.0% today to 20.6% in 3 years time.
• The bearish analysts expect earnings to reach R$522.3 million (and earnings per share of R$2.46) by about July 2028, up from R$63.1 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 3.9x on those 2028 earnings, down from 21.7x today. This future PE is lower than the current PE for the BR Consumer Durables industry at 10.4x.
• Analysts expect the number of shares outstanding to decline by 1.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 21.01%, as per the Simply Wall St company report.

Even Construtora e Incorporadora Future Earnings Per Share Growth

Risks

• Even has demonstrated consistent growth in profitability, cash generation, and dividend payouts over the past two years, supported by a solid capital structure, R$867 million in cash, and low leverage, which can sustain earnings resilience and investor returns over time.
  
• The company's focus on high-end and luxury segments in prime São Paulo locations has resulted in healthy inventory turnover and strong advance sales performance, with 84 percent of 2024 deliveries and 74 percent of 2025 deliveries already sold, supporting stable and potentially rising revenues.
  
• Even's business model of purchasing land in cash during restrictive credit cycles, alongside attracting partners to projects, provides it with a strong negotiation position and cost advantages that are likely to improve gross margins and capital returns.
  
• Efficient capital allocation and a cautious approach to land acquisition, coupled with the ability to launch high-value projects in sought-after neighborhoods, position Even to benefit from urbanization and increased long-term demand, supporting both future revenue growth and margin stability.
  
• Despite elevated interest rates and tighter credit, Even's upper-income customer base demonstrates continued interest in its products, with only decision-making delays rather than a drop in demand, helping to sustain sales velocity and minimize revenue risks.

Valuation

• The assumed bearish price target for Even Construtora e Incorporadora is R$6.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Even Construtora e Incorporadora's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of R$9.0, and the most bearish reporting a price target of just R$6.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be R$2.5 billion, earnings will come to R$522.3 million, and it would be trading on a PE ratio of 3.9x, assuming you use a discount rate of 21.0%.
• Given the current share price of R$6.94, the bearish analyst price target of R$6.0 is 15.7% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• 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.