Brazil Stock Guide – Banco Safra cut its price targets for Latin American e-commerce companies after raising its assumptions for Brazilian interest rates, while keeping Mercado Livre as its preferred stock in the sector.
The revisions underscore a widening gap between Nasdaq-listed Mercado Livre and Brazilian retailers Magazine Luiza and Casas Bahia, which remain more exposed to weak consumer demand, expensive credit and pressure on cash generation.
Safra lowered its 12-month price target for Mercado Livre shares to $2,300 from $2,400 and maintained its buy recommendation.
The bank kept a neutral rating on Magazine Luiza but cut its price target to R$ 6 from R$ 10. Casas Bahia remained rated sell, with its target reduced to R$ 1.20 from R$ 3.
Safra said it now expects Brazil’s benchmark interest rate to remain higher on average in 2026 and 2027, a backdrop that is likely to constrain household disposable income, raise borrowing costs and weaken demand for purchases financed in installments.
Mercado Livre continues to stand out because of its growth, operating efficiency and stronger financial position, the bank said.
The company has posted more than 30 consecutive quarters of revenue growth above 30%, while Safra estimates an average return on invested capital of 39% between 2025 and 2028.
Safra also said Mercado Livre’s valuation remains below historical levels. The shares trade at about 36 times projected 2027 earnings, compared with a historical average of around 55 times.
The bank expects the company’s net revenue to grow at an average annual rate of 32% between 2025 and 2028, supported by the continued expansion of e-commerce, logistics and digital financial services across Latin America.
Margins, however, are likely to remain under pressure in the coming quarters as Mercado Livre opens distribution centers, expands its credit business and increases spending on free shipping, discounts and promotional coupons.
Safra cut its long-term operating margin estimate for the company to 9% from 10.5%, although the revised level remains above its forecast for 2026.
Magazine Luiza faces a more difficult recovery as high interest rates continue to weigh on durable-goods categories that depend heavily on consumer financing, Safra said.
The bank expects modest sales growth in the second quarter of 2026 and broadly stable operating margins compared with a year earlier.
Cash generation remains a concern. Magazine Luiza recorded negative operating cash flow after capital expenditure of about R$ 600 million in the 12 months through the first quarter of 2026, according to Safra.
The outlook for Casas Bahia is weaker. The retailer burned about R$ 1.6 billion in cash over the past 12 months, the bank said, adding that operational and financial risks continue to justify a cautious view despite the stock’s low valuation.
Safra estimates Casas Bahia will generate an average return on invested capital of just 4% between 2025 and 2028, compared with 39% for Mercado Livre.
The bank said the main risks for the sector include a further deterioration in the economic outlook, rising credit delinquencies, execution problems, stronger competition from international platforms and Mercado Livre’s exposure to Argentina.
Even under a more challenging economic scenario, Safra said MELI remains the company best positioned to benefit from the long-term growth of e-commerce in Latin America.