Citi downgraded its recommendation for Nubank shares from buy to neutral, and also reduced the target price for the Brazilian digital bank 's stock from US$18 to US$13.
The updates come two weeks after Bank of America changed its recommendation for the stock from neutral to sell. The American investment bank also lowered its price target for the stock from $16 to $10.
In its reassessment of the stock, Citi emphasizes that Nubank is unlikely to slow its growth trajectory without sacrificing components such as monetization and profitability, due to its strong dependence on credit , a line in which the bank sees increasing risks.
"Nubank stands out for its disproportionately high exposure to credit cards, personal loans, and low-income customers, while still struggling to gain traction in private payroll loans," writes Citi.
Analysts at the bank note that Nubank expanded its loan portfolio by approximately 60% year-over-year. And that roughly 96% of this total portfolio is related to unsecured loans.
At the same time, the Citi team highlights the strong credit dependency observed in the operation, citing that the average revenue per client from this line already represents about 60% of the total average revenue per client.
Although Citi points out that approximately 9% of the bank's clients have exposure to payroll-deducted loans, it notes that this percentage is likely to increase due to Nubank's strong presence throughout Brazil and its vast customer base in the country.
In this context, the bank highlights the strong correlation between the cost of risk and the growth dynamics of loans, as well as the subordination of exposures to credit cards and personal loans to private payroll loans.
According to analysts, this increases Nubank's vulnerability to a displacement effect on borrowers' ability to pay, driven by the expansion of private payroll-deducted loans, something the bank claims is being underestimated.
"As private payroll loans continue to grow, they are likely to reduce borrowers' ability to repay, transferring incremental credit stress to other unsecured products," analysts point out.
To support this analysis, Citi uses the period from 2021 to 2023 as a reference, during which unsecured lines of credit, in particular credit cards and personal loans, and vehicle financing absorbed most of the deterioration in payments.
Conversely, during the same period, secured loans remained more resilient, consistent, and held a "priority payment" status for borrowers.
Based on this scenario, Citi reduced its profit estimate for Nubank in 2026 and 2027 by 9% and 15%, respectively, to US$3.7 billion and US$4.4 billion, citing the higher cost of operational risk as justification.
On another note, the bank projects a long-term return on equity (ROE) of 25%, compared to the previous figure of 30%, reflecting lower profit-generating power, a more challenging growth outlook, and increasing uncertainty regarding international expansion.
“Consequently, we have reduced our price target for the next twelve months to $13, based on a P/E multiple of 14.4 times for 2027, which implies a modest upside of approximately 10% compared to the current multiple of 13.1 times,” the bank writes.
Traded on the New York Stock Exchange, Nubank shares were up 2.13% around 10:30 AM (local time), quoted at US$12.45, valuing the company at US$60.5 billion. However, by 2026, the shares have accumulated a drop of more than 25%.
