BBVA's profit rises on strong lending in Spain and Mexico, but valuation remains stretched after the 137% run.

What happened

BBVA reported higher profit for the latest period, driven by top-line growth from robust lending activity in its core Spanish and Mexican businesses, as noted by the WSJ. The bank's fundamentals remain solid, with Spain and Mexico generating over €5.7B net profit in 1H25 and group cost of risk improving to 1.35%. However, the stock has already rallied 137% over the past year, trading at approximately 11x earnings and 2.0x book, which limits valuation upside. The company's ambitious 2025-28 targets of €48B cumulative profit and €36B shareholder distributions are already well known and largely priced in. Execution risk persists around Mexican macroeconomic conditions, FX volatility, and Spain's bank tax, making the current premium multiple less attractive for new entries.

Implication

Investors should recognize the solid earnings momentum but resist chasing the stock at current levels. The market is paying a premium for BBVA's high returns and capital distribution plan, leaving little room for error. A decline toward the $20 support level would offer a more favorable risk-reward, aligning with the report's attractive entry price. Alternatively, waiting for another year of consistent execution on profit and payout targets could justify a higher entry. Monitor Mexico's cost of risk, MXN trends, and CET1 trajectory after buybacks as key indicators of thesis health.

Thesis delta

The earnings update confirms strength in lending but does not alter the existing WAIT rating. The positive news is already reflected in the stock's significant run-up, and valuation remains full. No material shift in fundamentals or risk profile has occurred.