UBS Upgrades CaixaBank to 'Buy,' Citing Narrowing Valuation Premium and Strong Earnings Outlook

UBS Global Research has upgraded CaixaBank SA (CABK) to 'Buy' from 'Neutral', citing a more attractive valuation following recent underperformance and forecasting that the Spanish lender is poised for sector-leading earnings growth. The bank also raised its price target on the stock to €14.90 from €12.40.

Valuation Gap Narrows

The upgrade follows a period where CaixaBank's stock underperformed its domestic peers by approximately 10 percentage points after its second-quarter results, according to the UBS note. This pullback was reportedly driven by management's more conservative guidance for 2028 net interest income.

UBS analysts said this underperformance has significantly narrowed the bank's valuation premium over its Spanish rivals. The gap has shrunk to about 0.5 times on a 2028 price-to-earnings basis, reducing the relative valuation concern and creating a compelling entry point for investors.

Superior Growth Forecast

UBS projects CaixaBank will outpace its peers on key financial metrics, driven by structural factors like a higher-for-longer interest rate environment and renewed leverage among non-financial companies. The bank highlighted CaixaBank's strong exposure to these themes in Iberia.

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Key forecasts from UBS for CaixaBank include:

• EPS Growth: A compound annual growth rate of 12% in 2027-28, compared to an estimated 7-11% for Spanish peers.
• Net Interest Income (NII): A 9% rise, ahead of the 5-7% expected for competitors. This is supported by loan growth and the rollover of €25 billion to €30 billion in low-yielding bonds, which could generate a cumulative €750 million to €800 million in revenue over 2026-28.
• Tangible Book Value: Expected to grow by 19% before dividends, versus a 12-19% range for peers.

Price Target Rationale

The €2.50 increase in the price target is attributed to a combination of factors. These include a 2% increase in UBS's earnings per share estimates, a valuation roll-forward to year-end 2028, and a 100-basis-point reduction in the bank's cost of equity to 9%.

UBS noted that this lower cost of equity reflects more sustainable returns and reduced downside risk, pointing to the sharply fallen volatility around CaixaBank's return on tangible equity, which stands above 21%. Despite the recent dip, CaixaBank shares remain up about 25% year-to-date.