Banco Santander-Chile Double-Upgraded to Buy as BofA Sees Positive Outlook

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Banco Santander-Chile (NYSE: BSAC) experienced a 2.2% surge in its stock during Thursday’s mid-afternoon trading, following Bank of America’s double upgrade from Underperform to Buy. Analyst Ernesto Gabilondo believes that the worst is behind the company and expects earnings to turn around next quarter.

In a note to clients, Gabilondo mentioned that lower interest rates will likely bolster the overall net interest margins, leading to a robust recovery for BSAC in 2024-2025. He further noted that the bank’s earnings and NIM have been affected in recent years due to lower inflation levels and a derivative hedge on higher rates.

However, Gabilondo predicts that as rates continue to decline, the pressure on NIMs will fade, ultimately giving a boost to the stock price. It’s worth mentioning that the Buy rating from Bank of America differs from the SA Quant system rating and the average sell-side analyst rating, both of which indicate a Hold recommendation.

Factors Driving Banco Santander-Chile’s Positive Outlook

1. Interest Rates and Net Interest Margins (NIM)

The expected decline in interest rates is expected to positively impact net interest margins for Banco Santander-Chile. As interest rates decrease, the pressure on NIM is projected to diminish, contributing to the bank’s recovery in the coming years.

2. Inflation Levels

Lower levels of inflation in recent years have challenged the bank’s earnings and NIM. However, with expectations of inflation picking up, Banco Santander-Chile is likely to experience improved financial performance.

3. Derivative Hedge on Higher Rates

The bank’s previous derivative hedge on higher rates had a negative impact on its earnings and NIM. As rates decline further, the adverse effects of this derivative hedge are expected to subside, providing a favorable environment for the bank’s stock price.

Overall, Banco Santander-Chile’s double upgrade to Buy by Bank of America reflects growing optimism regarding the bank’s future. This positive sentiment is driven by expectations of improved net interest margins, the potential for higher inflation, and the diminishing impact of derivative hedges on higher rates.

As the worst appears to be behind Banco Santander-Chile, investors and traders should consider the positive outlook presented by Bank of America’s upgrade. However, it’s essential to keep in mind that other rating systems and analysts maintain a more cautious stance. Conducting thorough research and considering multiple perspectives will assist in making informed investment decisions.

Disclaimer: This article is for informational purposes only and should not be considered as financial advice.