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Why Shares of XP Soared on Friday

By Eric Volkman – Oct 15, 2021 at 5:58PM

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An analyst upgrades his recommendation on the stock to the equivalent of a buy.

What happened

For a publicly traded company, it's always pleasant to get a stamp of approval from a major player in the finance world. That was the case on Friday with Brazilian financial services company XP (XP 3.55%), whose shares were lifted nearly 8% on the back of a positive adjustment in sentiment from a high-profile source.

So what

Friday morning, Domingos Falavina, an analyst at the J.P. Morgan unit of JPMorgan Chase, changed his recommendation on the stock. He believes it's now overweight (read: buy); previously, he had tagged it as neutral. Falavina's price target is $50; if realized, this would mean the shares have 36% upside at their current level.

Brazilian coins and paper currency.

Image source: Getty Images.

The prognosticator's reasoning wasn't immediately apparent, but XP seems to be continuing along its growth path. In August, it released its second-quarter results, which showed that its headline financial figures were heading north. Total net revenue, for instance, rose by 57% year over year and 15% over the previous quarter, while adjusted net income advanced by 83% year over year and 22% sequentially.

Now what

XP's more-recent updates are more of a mixed bag. Earlier this week, the company unveiled its third-quarter key performance indicators, showing that its assets under custody actually slumped on a quarter-over-quarter basis by 3%. On the other hand, the number of active users of the company's finance platform rose by 5%. Perhaps most promising of all, purchase volume on the XP credit card leaped by 55%.

CFO Bruno Constantino was quoted as saying that he expects to witness "a healthy growth pace" in key metrics. Such a pronouncement, combined with the J.P. Morgan change in outlook, should keep the bulls running with this stock for now.

JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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