By Brazil Stock Guide – Nubank (NU) was upgraded to Buy by XP, with a price target of $21 per share, implying 54% upside after a roughly 20% share price decline that did not reflect any meaningful deterioration in fundamentals. The move reinforces the view that the digital bank’s structural growth remains intact, while the market prices short-term uncertainty.
Nubank currently trades at around 12x earnings (P/E) and 3x book value (P/B) for 2027, levels seen as historically low. XP expects 2026 to bring clearer catalysts, supported by rising disposable income in Brazil, driven by a tighter labor market and income tax reform. This backdrop should enable credit expansion, particularly in lower-risk segments.
According to XP, “We see an attractive combination of structural growth, improved earnings visibility, and an undemanding valuation”, said XP analysts Bernardo Guttmann, Matheus Guimarães and Guilherme Meneghetti.
What is at stake is Nubank’s ability to scale its credit portfolio while sustaining high profitability. The thesis depends on disciplined underwriting, controlled credit losses, and international execution, as investors assess whether the bank can maintain returns near a 30% ROE in new products.
Growth engines
Payroll lending stands out as a key driver. Both INSS-linked and private-sector loans offer lower risk and attractive returns, allowing Nubank to expand credit without significantly increasing delinquency.
Another pillar is small and medium-sized enterprises. The addressable credit market for SMEs in Brazil is estimated at R$730 billion (approximately $146 billion), still largely underpenetrated. Nubank aims to leverage its data-driven, low-cost model to capture this opportunity efficiently.
Meanwhile, Mexico is scaling faster than expected. The operation shows strong asset quality and is approaching breakeven. Over time, it is expected to become a meaningful contributor to consolidated returns and incremental ROE.
Valuation in focus
The recent share price correction, without corresponding earnings downgrades, suggests a disconnect between price and fundamentals. For XP, this creates an attractive entry point.
Investors remain cautious on Brazil’s credit cycle and macro outlook. Still, the combination of international expansion, new credit verticals, and a growing customer base positions Nubank as one of the leading growth stories in Latin America’s financial sector.
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