Morgan Stanley raises XP stock price target to $26 on higher EPS estimates

Morgan Stanley has raised its price target for XP Inc. (NASDAQ:XP) to $26.00, maintaining an Overweight rating, citing increased 2025 and 2026 EPS estimates and projected strong local currency EPS growth. This upgrade follows XP Inc.'s robust first-quarter results, which surpassed analyst EPS expectations with adjusted earnings of R$2.29 and a record adjusted net income of R$1.2 billion, alongside a 13% year-over-year increase in total client assets to R$1.33 trillion and a new R$1 billion share repurchase program, reinforcing the company's growth trajectory and strong capital position.

Analysis

Morgan Stanley has upgraded its price target on XP Inc. to $26.00 from $24.00, maintaining an Overweight rating based on upwardly revised earnings estimates. The firm now projects 14% local currency EPS growth in 2025 and an acceleration to 18% in 2026, with an expected return on equity between 22-23%. This optimistic outlook is substantiated by XP Inc.'s recent first-quarter results, where the company achieved a record adjusted net income of R$1.2 billion, a 20% year-over-year increase, and an adjusted EPS of R$2.29 that surpassed analyst consensus. Despite a slight revenue miss, top-line growth was 7% year-over-year, driven by a robust 44% increase in fixed income revenue that successfully offset a 15% decline in equities revenue. The company's fundamental strength is further underscored by a 13% YoY increase in total client assets to R$1.33 trillion, positive net inflows of R$24 billion, a strong BIS capital ratio of 19.0%, and a new R$1 billion share repurchase program. The stock's current valuation, reflected by a favorable PEG ratio of 0.79, appears attractive in light of these growth indicators and capital return initiatives.

Key Decisions for Investors

• Given the combination of strong Q1 earnings, positive analyst revisions, and an attractive PEG ratio of 0.79, investors may consider the current share price a compelling entry point.
• The new R$1 billion share repurchase program represents a significant catalyst for shareholder value, and its execution should be monitored as a key indicator of management's confidence.
• Investors should closely watch the revenue mix, as the ability of the high-growth fixed income segment to continue offsetting weakness in equities is critical for sustaining overall top-line momentum.
• Continued growth in key operational metrics, such as net inflows and total client assets, will be crucial to track in subsequent quarters to confirm the durability of the company's growth trajectory.