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Morgan Stanley cuts XP Inc. stock rating to Equalweight

EditorAhmed Abdulazez Abdulkadir
Published 04/23/2024, 06:48 AM

On Tuesday, Morgan Stanley adjusted its stance on XP Inc. (NASDAQ:XP), downgrading the stock from Overweight to Equalweight. Accompanying the rating change, the firm also revised its price target for the company's shares to $24 from the previous $31. The revision reflects concerns about persistent high-interest rates and a deceleration in business momentum, which are expected to hinder the company's near-term performance.

The firm pointed out that the current consensus estimates for XP Inc.'s performance in 2024 and 2025 might be overly optimistic, particularly regarding the expected rise in the take rate—a key revenue metric for the company. According to Morgan Stanley, the new landscape of interest rates could dampen these expectations.

Morgan Stanley's assessment indicates that XP Inc.'s stock has already undergone a correction, which is one reason the firm has not moved to an Underweight rating. Despite the near-term headwinds, the analyst believes XP Inc. still presents an attractive long-term story, which supports the decision to maintain an Equal-weight position rather than downgrading further.

The firm's commentary highlighted the challenging environment for XP Inc., with higher interest rates likely to persist for an extended period. This scenario is anticipated to act as a brake on the company's ability to outperform in the current market conditions.

In summary, Morgan Stanley's updated view on XP Inc. suggests caution due to the macroeconomic headwinds and tempered business growth, while still acknowledging the company's long-term potential. The new price target of $24 reflects these revised expectations for the company's financial outlook.

InvestingPro Insights

In light of Morgan Stanley's recent adjustment of XP Inc.'s stock rating, InvestingPro data and tips offer additional perspectives for investors considering this capital markets player. With a market capitalization of $11.58 billion and a P/E ratio that stands at 15.13, XP Inc. is positioned as a significant entity in its industry. The revenue growth over the last twelve months, as of Q1 2023, was a robust 10.02%, highlighting the company's ability to increase its earnings despite challenging market conditions.

One InvestingPro Tip suggests that XP Inc.'s management has been aggressively buying back shares, which can be interpreted as a sign of confidence from the company's leadership in its value proposition and future prospects. Additionally, the stock is considered to be in oversold territory according to the RSI metric, suggesting that the recent price drop might provide a buying opportunity for investors who believe in the company's fundamentals.

It's worth noting that analysts predict XP Inc. will be profitable this year, and the firm has been profitable over the last twelve months. However, two analysts have revised their earnings downwards for the upcoming period, which aligns with Morgan Stanley's concerns about the impact of high-interest rates and a potential deceleration in business momentum.

For investors seeking a deeper dive into XP Inc.'s potential, there are additional InvestingPro Tips available at Use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, and explore the full range of insights that could shape your investment decisions.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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