JPMorgan cuts Banco do Brasil to sell after rally

JPMorgan downgraded Banco do Brasil from neutral to underweight, an equivalent to a sell recommendation, after a strong post-election rally in Brazilian financial assets. Following the revision on Tuesday, October 6, shares fell 2.28% to 25.73 Brazilian reais at 10:20 a.m. in Brasília.

The brokerage raised its price target marginally from 22 to 23 Brazilian reais, which represents a downside potential of 13% compared to the reference price of 26.30 reais. Although Banco do Brasil shares gained around 16% since the previous Friday and 50% since August 15, JPMorgan analysts noted that operational recovery will take longer than expected.

The bank projected that 2027 will remain challenging, with recovery postponed to 2028. Analysts warned that substantial agribusiness exposure limits the institution's ability to benefit from potential Selic interest rate cuts compared to private peers. Deterioration in agribusiness credit quality is also expected to pressure earnings, returns, and dividend payouts.

JPMorgan forecast return on equity (ROE) of 8.7% in 2026, 11.8% in 2027, and 13% in 2028. Adjusted net income is projected at 16 billion Brazilian reais in 2026, down from 20.7 billion reais in 2025, before rising to 22.6 billion reais in 2027 and 27.1 billion reais in 2028. While praising the bank's deposit base, liquidity, and low funding costs, JPMorgan highlighted better risk-reward alternatives across the sector.