Nu Holdings Ltd. (NYSE:NU) is poised to open slightly higher on Thursday, with shares indicated up 0.3% at $14.52 ahead of the U.S. cash market session. The modest uptick comes as investors weigh the company's recently announced $1 billion share repurchase authorization against the upcoming second-quarter earnings report, which is scheduled for release after the market close on August 13.
The buyback, while notable in absolute terms, offers limited support to the stock. At the current price of $14.52, the $1 billion authorization would cover approximately 68.9 million shares, which is just under the typical daily trading volume of about 69.2 million shares. This represents only 1.44% of Nu's $69.23 billion market capitalization as of Wednesday. The program is set to run until June 3, 2027, but the company is not obligated to repurchase a specific number of shares, and actual buybacks will depend on market conditions and alternative investment opportunities.
Investors are increasingly focused on the company's credit metrics, which have shown signs of strain. In the first quarter, Nu's credit portfolio grew 40% year-over-year, but allowances for credit losses jumped 33% sequentially. The risk-adjusted net interest margin contracted by 100 basis points to 9.5%. Furthermore, early-stage non-performing loans (NPLs) rose by 89 basis points to 5.0% in Q1, partly due to seasonality. Late-stage NPLs stood at 6.5%, which is higher than some regional peers.
The upcoming earnings report will be a critical test of CEO David Vélez's assertion that the company is pursuing growth with "resilience, not just speed." Analysts expect earnings of $0.20 per share on revenue of $5.39 billion, according to consensus estimates. The company's stock has gained 1.7% over the past week and 1.0% so far this week, but remains 23.5% below its 52-week high of $18.98.
Brazilian banking peers have set a high bar. Itaú Unibanco (NYSE:ITUB) and Banco Bradesco (NYSE:BBD) both reported strong loan growth and improved recurring earnings in their latest quarters, with late-stage NPL ratios of 1.9% and 4.3%, respectively—both lower than Nu's 6.5%. While Nu leads in growth and return on equity (29.0% versus 24.3% and 16.2% for Itaú and Bradesco), its higher NPL ratio raises concerns about asset quality.
The macroeconomic environment adds another layer of complexity. Brazil's central bank cut the Selic rate by 25 basis points to 14.00% on Wednesday, marking the fourth consecutive reduction. For Nu, lower rates could improve borrower affordability, but they also pressure gross float yields, which contributed 41% to first-quarter gross profit. Ivo Chermont, chief economist at Quantitas, cautioned that while the situation has improved, "it is too early to declare victory," and the central bank gave no clear guidance on future moves.
Analyst sentiment remains generally positive, though price targets vary widely. The most bullish target is $22 from Goldman Sachs, while the most bearish is $10 from Bank of America, which downgraded the stock to Sell in June. The average price target of $17.98 implies about 24% upside from Wednesday's close. The wide range underscores the ongoing debate about the sustainability of Nu's credit growth.
Risks to the story include faster-than-expected rate cuts that could compress float yields, foreign exchange volatility, and higher expansion costs. A deterioration in credit quality could overshadow the buyback's benefits. On the other hand, if Nu delivers steady risk-adjusted margins and manages late-stage NPLs effectively, the buyback could gain more significance. For now, the 1.44% authorization is unlikely to move the needle much relative to the earnings outcome.
