Morgan Stanley says this undervalued Brazilian digital bank can double

Investors are underappreciating the durability and growth opportunities of Agibank , according to Morgan Stanley. The bank initiated coverage of the Brazilian digital bank with an overweight rating and $21 price target, implying an upside of 100% from Friday’s close. Shares of AGI have slipped 12.5% since going public last month. The company’s initial public offering was priced at $12 per share. Morgan Stanley was one of the IPO’s underwriters. AGBK 1M mountain AGBK 1M chart Analyst Jorge Kuri wrote that the bank primarily focuses on serving retirees of Brazil’s National Social Security Institute, or INSS. “We see strong earnings growth supported by a differentiated distribution model, accelerating share gains, conservative provisioning, and an upcoming rate-cut cycle. Shares trade at deep P/E and PEG discounts versus peers,” he said. Kuri added that Agibank’s “compelling” mixture of an attractive valuation, strong earnings growth and high quality returns make the stock look especially attractive. Investors may not necessarily be pricing in these factors yet, he said. “AGBK trades at a meaningful discount to peers on 2027 P/E (40% discount) and at a steeper discount on a growth-adjusted basis (peer-low PEG, 70% discount). In our view, the market underappreciates the durability of earnings and structural growth embedded in the franchise,” the analyst wrote. Going forward, Kuri sees three primary high-conviction drivers for the bank’s earnings growth. First, he the bank’s INSS-backed loans, which represent 79% of its loan book, anchor the franchise. This payroll loan industry has already demonstrated steady growth in the past, which he said should accelerate as rates ease. The analyst thinks that Agibank could continue to gain share in the market for INSS-backed payroll loans. Outside of these loans, the bank has also worked on its product expansion. “Agibank has expanded into public and private payroll loans, deposits, PIX, cards, unsecured personal loans, and insurance. These adjacencies offer low-penetration cross-selling opportunities and support stronger credit and fee growth, higher lifetime value, and improved funding stickiness,” Kuri said. The analyst also applauded Agibank’s distribution model of Smart Hubs, which he said target an older, lower-income base with limited digital and financial confidence. These hubs cost 90% less than traditional branches, and have the added advantage of enabling in-person onboarding and eliminating costly third-party brokers.