Analysed by Jefferies
BBVA shares have lagged behind so far this year against a backdrop of widespread risk aversion, butthe fundamentals remain solid for the European bank with thehighest RoTE (24%). Given that risks relating to Turkey are already largely priced in, looking ahead we see upside potential of over 50% relative to consensus earnings forecasts, with more than 50% of this coming from Mexico – the main point of contention amongst investors. Our in-depth analysis of Mexico supports a constructive medium-term view on the economy and on BBVA Mexico, which is why we are adding BBVA to our list of high-conviction ‘Franchise Picks’.
Ultimately, BBVA’s outlook revolves around Mexico, the factor dividing investors. Given that Mexico accounts for 45 per cent of the Group’s profits by 2025 (excluding head office), it remains the central focus of the debate. In this report, we analyse Mexico’s economic outlook in depth, in the context of the USMCA, the Mexico 2030 Plan and BBVA’s presence in Mexico.
Our analysis leads us to be confident about the medium-term outlook for the Mexican economy and BBVA’s business. Although the recent decision not to extend the USMCA introduces some short-term uncertainty, we believe that trade relations between Mexico and the United States should not be significantly affected. Furthermore, the Mexico 2030 Plan provides a boost in the medium term. Some might question the government’s ability to fully meet the 2030 targets — after all, this is Mexico’s perennial promise of growth — buteven partial fulfilment could represent upside potential compared with what is currently priced into BBVA Mexico’s share price. We are slightly above the profit forecasts for 2027/2028, thanks to slightly higher net interest income, driven by stronger growth and better margin management in the region.
Outside Mexico, the picture is clearer. The business in Spain is performing well, supported by the solid growth and interest rate environment, despite higher ST costs. The Turkish recovery —which was a source of optimism in early 2026— has been delayed, and the rating downgrades for BBVA Turkey have already been priced in, although a possible reclassification by MSCI could represent an additional headwind. The new growth drivers, specifically digital banks and investment and corporate banking (CIB) operations outside the core markets, are, in our view, a source of upside potential, albeit modest within the context of the group.
We are raising our profit forecasts for 2027/28 by 5–7%, which places us slightly above market forecasts. Our upward revisions are due to improved net interest income dynamics in both Mexico and Spain, partly offset by greater pressure in Turkey. The improved exchange rate performance in Mexico also contributes to this. 53% of our upside potential for 2028 relative to consensus earnings is attributable to stronger results in Mexico, whilst a further 24% comes from the rest of the business (digital banks + CIB operations outside the core markets). Buy, Target Price of up to €27 (up €6, of which two-thirds is due to higher profits and a valuation adjustment, and one-third to a lower cost of capital).
The underperformance relative to the sector so far this year offers anattractive entry point. Given that the share is trading at a P/E ratio of 8.5 times 2028 forecasts, or at 1.9 times the projected PTNAV for 2028 with a RoTE of 24% (compared with 1.8 times for the sector with a RoTE of 18%), the shares do not appear expensive at all, given their solid profitability and growth (JEFe’s forecast EPS CAGR for 2025–2028 of 15 per cent, compared with the EU banking average of 8 per cent).
