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Nu Holdings: Why Wall Street Says It's a Buy

Warren Buffett-backed Brazilian fintech Nu Holdings recently debuted on the NYSE with a market cap above $40 billion. But despite stretched valuations, the Wall Street consensus sees NU as a buy.

Nu Holdings  (NU)  is appropriately named. It became a public company only recently, after making its initial public offering (IPO) in December 2021. It debuted with a value above $40 billion. But since its IPO, NU shares have fallen 9%.

In a previous Wall Street Memes article, we wondered what would come next for Nu's stock. One of the biggest factors that could influence NU is Wall Street's opinion of the company.

Analysts aren't allowed to publish research on a publicly traded company until one month after its IPO. Now, past the one-month mark, we're already seeing the impact of Wall Street ratings on NU.

After receiving positive ratings from Morgan Stanley, Goldman Sachs, UBS, and some others, the stock has risen 6%.

Let's dig into what Wall Street is currently saying about Nu Holdings stock.

Figure 1: Nu Holdings on its NYSE IPO.

Figure 1: Nu Holdings on its NYSE IPO.

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Wall Street Is Bullish on NU

The first Wall Street ratings of Nu Holdings after its IPO have been bullish, even though the stock's overall performance hasn't been great.

Based on 10 analysts offering price targets for the next 12 months, the consensus has labeled NU a buy. The average price target is $12.25, implying an upside of 31% based on the current per-share price of $9.34 at last check.

Here are some highlights.

Morgan Stanley

Morgan Stanley analyst Jorge Kuri is the most bullish of them all. He initiated his NU coverage with a buy recommendation and a $16 price target, implying an upside of more than 75%.

He believes subsidiary Nubank will soon be the largest and most profitable banking franchise in Latin America due to its rapid digital platform growth and the cross-selling of additional products.

Goldman Sachs

Goldman Sachs analyst Michal Ng started his coverage of NU with a buy recommendation and a $15 price target, representing a 65% upside. He pointed out that Nubank is the largest digital bank outside Asia, with more than 48 million customers.

Ng also added that the company already has high levels of monetization that should lead the digital bank to register a countercyclical performance despite macroeconomic headwinds.

Susquehanna

Susquehanna analyst James Friedman also has a buy recommendation on NU, with a price target of $14. Friedman rated Nu Holdings a "unique" growth story with "good visibility on hyper-growth for many years to come."

Itaú BBA

So far, Itaú BBA analyst Pedro Leduc is the only bear around. He initiated coverage of NU with a sell recommendation, pointing to an $8 price target, which would indicate a 12% downside.

Leduc's biggest concern is that he considers NU's valuation too stretched with no room for setbacks. However, although he predicted the company will have monetization difficulties ahead, he recognized that the company has “much merit” in building its strong customer base.

NU Is All About Growth

As mentioned by Susquehanna's James Friedman, Nu Holdings has been experiencing hyper-growth. When companies with this kind of profile are publicly listed, they tend to be priced primarily based on the growth potential of their technology offerings, rather than their ability to generate revenue or profit.

Nu Holdings' main strengths are its gigantic number of active customers, along with the excellent execution of its digital banking platform and its strong brand recognition in Latin America. The region is an emerging market with enormous potential.

However, there are several macroeconomic setbacks that could put the brakes on the growth analysts expect. They include economic instability in Latin American markets, where a possible scenario of high defaults could cause a slowdown.

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(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting the Wall Street Memes)