XP Inc.: WAIT Rating Maintained as Retail Monetization and Legal Overhang Persist

What happened

XP's recent share price recovery masks underlying deterioration in retail monetization and net inflows, with FY2025 net inflows falling 13% YoY and retail take-rate declining 8 bps to 1.25%. The Zacks article's value framing overlooks that client asset growth is increasingly driven by market beta rather than organic new money, weakening the earnings power per AUC. Meanwhile, the Banco Master/FGC civil public action poses a regulatory overhang that could restrict fixed-income distribution if a court grants an injunction. Corporate & Issuer Services revenue surged 49% YoY in Q4, but that cyclical strength is insufficient to offset retail pressure without a take-rate stabilization. The base case of $20 per share still offers limited upside from $19.22, and the bear case of $13 is a real risk if legal or monetization trends worsen.

Implication

The next 1-2 quarterly prints are critical to confirm whether XP can sustain earnings resilience. A favorable outcome would see retail take-rate hold above 1.25% and net inflows stabilize near R$94bn, supporting a base case value of $20. However, any adverse court ruling on FGC marketing or continued decline in take-rate could trigger a reset, with a bear case of $13. Current valuation at 10.5x P/E offers no margin of safety given the cash flow volatility and negative free cash flow in recent quarters. Investors should monitor the legal developments closely and consider entry only around $17, the attractive entry point. The risk/reward is skewed to the downside until KPIs confirm a turnaround.

Thesis delta

Our thesis remains unchanged: XP's current price already prices in continued earnings resilience, but the key operating metrics are weakening. No significant new information in the Zacks article alters the WAIT stance. We require stabilization of retail take-rate and net inflows before upgrading.