Key Takeaways
- Intensifying competition and heavy regulatory pressures threaten revenue growth while inflating operational and compliance costs.
- High credit risk from expanding into riskier segments could erode profitability if customer or product adoption slows.
- Strong digital adoption, diversified credit strategy, and tech-driven efficiencies position the company for sustained revenue growth, higher margins, and stable long-term profitability.
Catalysts
About Inter & Co- Through its subsidiaries, engages in the banking and spending, investments, insurance brokerage businesses.
- Surging competition from both established global fintech players and big tech companies threatens to erode Inter & Co.'s market share and limit new user acquisition, which could severely constrain long-term revenue growth and curb future gains in cross-selling opportunities across its ecosystem.
- Rising regulatory scrutiny over digital banking, including enhanced privacy, cybersecurity, and anti-money laundering standards, is likely to drive sustained increases in compliance and operational costs, dragging down net margins and slowing innovation in new product launches.
- Ongoing global inflation pressures and persistently high interest rates may raise the cost of funding while dampening consumer demand for loans, directly compressing net interest margins and weakening the credit growth that currently underpins Inter & Co.'s top-line expansion.
- Heavy reliance on rapid customer acquisition and increased product penetration creates significant risk that a slowdown in new client growth, or a failure to increase product adoption per user, will leave revenues and earnings stagnant while high fixed technology and acquisition expenses continue to rise.
- Inter & Co.'s active expansion into higher-risk, lower-income segments through products like Buy Now Pay Later and expanded credit offerings exposes the company to elevated credit risk, which-combined with potential economic downturns-could necessitate sharply higher provisioning and result in material declines in net income and return on equity over the medium to long term.
Inter & Co Future Earnings and Revenue Growth
Assumptions
How have these above catalysts been quantified?- This narrative explores a more pessimistic perspective on Inter & Co compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
- The bearish analysts are assuming Inter & Co's revenue will grow by 34.0% annually over the next 3 years.
- The bearish analysts assume that profit margins will shrink from 20.5% today to 20.4% in 3 years time.
- The bearish analysts expect earnings to reach R$2.4 billion (and earnings per share of R$5.38) by about July 2028, up from R$1.0 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 bearish analyst cohort, the company would need to trade at a PE ratio of 6.7x on those 2028 earnings, down from 17.1x today. This future PE is lower than the current PE for the US Banks industry at 11.9x.
- Analysts expect the number of shares outstanding to grow by 0.16% per year for the next 3 years.
- To value all of this in today's terms, we will use a discount rate of 11.22%, as per the Simply Wall St company report.
Inter & Co Future Earnings Per Share Growth
Risks
What could happen that would invalidate this narrative?- Inter & Co. benefits from sustained digital banking adoption and financial inclusion trends in Brazil and Latin America, providing it with a long runway for customer acquisition and fee-based revenue expansion, which could support higher top-line revenue growth over the long term.
- The company's focus on a diversified, mostly collateralized credit portfolio-such as FGTS loans, home equity, and private payroll products-has resulted in higher asset quality, improving net interest margins and lowering credit costs, which can boost net profits and reduce earnings volatility.
- Robust client activation and engagement are reflected in strong active user growth and a broadening product ecosystem (seven business verticals), supporting both recurring fee revenue and cross-sell opportunities that can underpin stable or improving earnings.
- The successful global expansion, especially with the global account for cross-border and expat banking, is opening new high-value customer segments with stronger ARPAC (Average Revenue Per Active Client), which could drive higher margins and contribute meaningfully to long-term earnings growth.
- The company's ongoing investments in technology, process automation, artificial intelligence, and operational leverage have led to improving efficiency ratios and lower cost to serve per client, laying the foundation for margin expansion and increasing long-term return on equity.
Valuation
How have all the factors above been brought together to estimate a fair value?- The assumed bearish price target for Inter & Co is $4.67, which represents two standard deviations below the consensus price target of $7.24. This valuation is based on what can be assumed as the expectations of Inter & Co'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 $9.0, and the most bearish reporting a price target of just $4.0.
- In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be R$11.9 billion, earnings will come to R$2.4 billion, and it would be trading on a PE ratio of 6.7x, assuming you use a discount rate of 11.2%.
- Given the current share price of $6.84, the bearish analyst price target of $4.67 is 46.4% 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.
How well do narratives help inform your perspective?
Disclaimer
AnalystLowTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystLowTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystLowTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.