BBD Investment Analysis Report & Stock Research, Banco Bradesco SA ADS

Ockham’s Rating/Recommendation Summary

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BBD Revenue

Cash earnings is the most important factor in our analysis, but it goes without saying that if a company cannot produce sales then there is no ability to generate cash flow. By that logic we look very closely at revenue numbers as our second most important factor in valuing a company’s stock. We have established reasonable Price to Sales per share ranges based on historical data of the last 9 years. For, BBD the high and low end of the Price to Sales per share ratios are 2.12x and 0.87x respectively.

Notice that BBD’s current Price to Sales per share ratio is 2.17x, which is high enough compared with historical norms of BBD to cause some concern. The current Price to Sales per share is near the upper end of the historical range. In our eyes, this is a negative factor because it is more likely that it will return to the normal range than continue rising outside of the range. At current sales per share levels, we would need to see a decline in the Price to Sales ratio of 44% merely to return BBD to its historical average.

BBD Cash Earnings

Looking at BBD specifically in their Cash Earnings capabilities, Ockham views BBD as significantly above their historical average multiples of Cash Earnings, as calculated by our proprietary analysis. It is incredibly important to understand that for BBD, the current level of Cash Earnings compared to its historical levels helps identify where BBD is in relation to what the investing community was willing to pay for this level of Cash Earnings in the past. With a historical high Cash Earnings per share ratio of 20.57 and a historical low Cash Earnings per share ratio of 8.25, an investor can relate where value becomes optimal.

Just recall that when a stock’s price, as in the cases of BBD, is significantly elevated to the level of Cash Earnings being generated, the market has already priced in much of that value. For example, the historical average for BBD’s Price to Cash Earnings ratio is 31% below the current ratio of 18.96. That is not an insignificant amount, and diminishes our overall outlook on BBD. However, you need to review several areas of a company’s potential, and as management would point out, one metric is not the end-all-be-all of any analysis.

BBD Dividends

A strong dividend payment history is looked upon as a favorable characteristic on a company’s future and potentially can receive a positive Ockham rating. That being said, we don’t require dividend payments for company’s whose management has elected to forgo them entirely.

When reviewing dividend yields for BBD, we compare the historic high and low levels over the past, which is similar to our evaluation of Sales and Cash Earnings per share. Paying a dividend is not necessary for any company, but changes in dividend often can lend clues as to the health of the business. A rising dividend is a strong sign for an established company, as it reflects management’s confidence in the company. BBD’s estimated annual dividend is $0.09 resulting in a current dividend yield of 0.48%. The highest dividend yield from BBD over recent history was 13.59% while the lowest dividend yield was 0.00%. It is never a good sign for a company to pay significantly lower dividends, in this case 92.94% below the median yield. Although, dividends are a relatively small portion of our analysis framework, we still see this as a negative factor.