10:45 AM EST, 01/14/2025 (MT Newswires) -- (Updates to clarify headline and add recent stock price movement in the final paragraph.)

XP's (XP) earnings estimates were cut as rate forecasts for Selic, the Brazilian reference interest rate, have continued to move up over the last month, Morgan Stanley said in a note emailed Monday.

The company's net income is now expected to grow 5% for 2025, compared with 10% previously, and 15% for 2026, compared with the previous estimate of 19%, Morgan Stanley said.

"Higher-for-longer Selic rates explain most of the changes," the note said. "Our economists now expect Selic to reach 15.75% by year-end 2025, up from their month-ago forecast of 12.50%." Selic rates are currently at 12.25%, according to the brokerage.

XP, however, is well-positioned to capture market share from incumbents, Morgan Stanley said, adding new verticals are expected to boost earnings and return on equity in a risk-on market environment.

"We remain constructive on the long-term secular industry growth story driven by low penetration, sophistication of capital markets, and asset allocation shift in savings," the note said.

Morgan Stanley cut its price target on XP to $18 from $21, but kept the company's equal-weight rating.

Shares of XP were down 2.8% in recent trading Tuesday.

Price: 11.24, Change: -0.32, Percent Change: -2.73