ITUB

We rate Itau Unibanco Holding S.A. (ITUB) as a Buy with a composite score of 65.1/100 at a current price of $9.33. The stock scores above average across the majority of our six quantitative factors and ranks #281 out of 7,333 stocks in our universe, reflecting a favorable risk-reward profile.

The rating is primarily driven by strength in investment (92th percentile) and momentum (88th percentile), which together account for the majority of the composite score. Offsetting weakness in quality (35th percentile) and stability (56th percentile) tempers our overall conviction. We assign a No Moat rating (23/100), Low uncertainty, and Poor capital allocation.

Key items to watch: whether strong momentum is fundamentally supported by revenue trends. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

Itau Unibanco Holding S.A. holds an above-average position (#13 of 50) within the Finance, Insurance, And Real Estate sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 65.1/100 places it at rank #281 in our full 7,333-stock universe. With a $21.2B market capitalization, Itau Unibanco Holding S.A. operates at meaningful scale within the Finance, Insurance, And Real Estate sector, providing competitive advantages in distribution, procurement, and customer reach.

Despite positive momentum (88th percentile), revenue contraction of -10% creates a divergence between price action and fundamental trajectory. This divergence suggests either that the market is looking through near-term weakness or that technical factors are temporarily inflating the stock. Investors should assess whether the revenue decline reflects cyclical weakness or structural challenges.

The margin cascade tells an important story: gross margins of 57% (-19.8pp vs sector) narrow to operating margins of 43% (+26.3pp vs sector) and net margins of 31.9%, yielding a gross-to-net conversion rate of 56%. This efficient conversion suggests well-controlled operating costs and limited margin leakage between the gross and net levels.

At a current price of $9.33, Itau Unibanco Holding S.A. appears undervalued relative to its fundamentals. Our value factor score of 73/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. The stock screens as attractively priced on a majority of these measures, suggesting the market may be underappreciating the underlying fundamentals.

The stock currently trades at EV/EBITDA of 1.9x (discounted to peers), P/S of 1.2x. We evaluate these multiples in the context of both absolute levels and sector-relative positioning to form our valuation view.

We assign a Low uncertainty rating to Itau Unibanco Holding S.A.. The company exhibits strong financial stability with a beta of 0.55, and a stability factor in the 56th percentile. The predictable nature of the business model and solid financial position reduce the range of potential outcomes, giving us confidence in our fair value estimate.

Specific risk factors that inform our assessment include: low beta of 0.55 — while defensive, this may indicate limited upside participation in bull markets. Each of these factors independently widens the distribution of potential outcomes, and in combination they create a risk profile that demands careful position sizing. The stability factor at the 56th percentile and quality factor at the 35th percentile provide a quantitative summary of the overall risk landscape.

Key risk mitigants include: healthy gross margins of 57% provide a buffer against cost pressures; a 12.61% dividend yield anchors total return. These factors partially offset the identified risks and provide downside protection in adverse scenarios. On balance, the risk-reward profile is favorable for long-term investors.

We rate Itau Unibanco Holding S.A.'s capital allocation as Poor. Key concerns include low returns on equity (-668.2%). Exemplary capital allocators generate ROE above 20% and maintain conservative leverage — Itau Unibanco Holding S.A. significantly underperforms these benchmarks, raising questions about management's ability to create shareholder value.

Investors should scrutinize management's reinvestment decisions and balance sheet trajectory before committing capital. Poor capital allocation often compounds over time: overlevered balance sheets limit strategic flexibility, while low returns on capital destroy shareholder value. We would need to see sustained improvement in profitability metrics and balance sheet discipline before considering an upgrade.

In summary, Itau Unibanco Holding S.A. receives a Buy rating with a composite score of 65.1/100 (rank #281 of 7,333). Our quantitative framework assigns a No Moat (23/100, trend: stable), Low uncertainty, and Poor capital allocation. The average factor score across quality, value, momentum, stability, and investment is 69/100.

Our analysis supports a constructive view on Itau Unibanco Holding S.A.. The combination of the current valuation, low uncertainty, and poor capital allocation creates a risk-reward profile that favors accumulation at current levels. We recommend investors consider adding this name to portfolios aligned with the stock's risk profile.