What Does The Future Hold For XP Inc. (NASDAQ:XP)? These Analysts Have Been Cutting Their Estimates

Market forces rained on the parade of XP Inc. (NASDAQ:XP) shareholders today, when the analysts downgraded their forecasts for this year. Revenue estimates were cut sharply as the analysts signalled a weaker outlook - perhaps a sign that investors should temper their expectations as well.

Following the downgrade, the current consensus from XP's ten analysts is for revenues of R$14b in 2023 which - if met - would reflect a notable 12% increase on its sales over the past 12 months. Per-share earnings are expected to increase 5.5% to R$6.74. Previously, the analysts had been modelling revenues of R$16b and earnings per share (EPS) of R$7.32 in 2023. It's pretty clear that analyst sentiment has fallen after the recent consensus updates, leading to lower revenue forecasts and a small dip in earnings per share estimates.

View our latest analysis for XP

The consensus price target fell 9.0% to R$108, with the weaker earnings outlook clearly leading analyst valuation estimates. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. The most optimistic XP analyst has a price target of R$29.49 per share, while the most pessimistic values it at R$14.96. The narrow spread of estimates could suggest that the business' future is relatively easy to value, or that the analysts have a clear view on its prospects.

Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. It's pretty clear that there is an expectation that XP's revenue growth will slow down substantially, with revenues to the end of 2023 expected to display 12% growth on an annualised basis. This is compared to a historical growth rate of 32% over the past five years. Juxtapose this against the other companies in the industry with analyst coverage, which are forecast to grow their revenues (in aggregate) 7.3% per year. Even after the forecast slowdown in growth, it seems obvious that XP is also expected to grow faster than the wider industry.

The Bottom Line

The biggest issue in the new estimates is that analysts have reduced their earnings per share estimates, suggesting business headwinds lay ahead for XP. Unfortunately, analysts also downgraded their revenue estimates, although our data indicates revenues are expected to perform better than the wider market. The consensus price target fell measurably, with analysts seemingly not reassured by recent business developments, leading to a lower estimate of XP's future valuation. Often, one downgrade can set off a daisy-chain of cuts, especially if an industry is in decline. So we wouldn't be surprised if the market became a lot more cautious on XP after today.

With that said, the long-term trajectory of the company's earnings is a lot more important than next year. At Simply Wall St, we have a full range of analyst estimates for XP going out to 2025, and you can see them free on our platform here.

Of course, seeing company management invest large sums of money in a stock can be just as useful as knowing whether analysts are downgrading their estimates. So you may also wish to search this free list of stocks that insiders are buying.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.