According to the US broker, Spanish banks are entering the Q3 earnings season amid a rise in the cost of equity linked to recent market volatility, although their fundamentals remain solid.

"Volume growth remains a key strength, while the persistence of high interest rates in the European Union should continue to support net interest income over the medium term. Inflation could put some pressure on costs in 2027, but asset quality remains robust," it added.

Following the recent decline in equity valuations, Jefferies believes the sector still offers attractive investment opportunities. It therefore upgraded Bankinter shares from "Hold" to "Buy", increasing its target price for them from €17 to €18.

Jefferies prefers Bankinter to Santander

The broker notes that, following its underperformance since the beginning of the year, Bankinter now trades at a discount to CaixaBank and Unicaja on a one-year forward P/E basis, whereas the stock has historically traded at valuation premiums of around 15% and 25%, respectively.

"We believe this discount is unjustified, particularly given the greater sensitivity of Bankinter's net interest income to a high-interest-rate environment in the short term," it said, while also raising its EPS forecasts for the group by 3%.

Conversely, Jefferies downgraded  Santander from "Buy" to "Hold", with EPS estimates for 2027 and 2028 slightly below consensus, by a few percentage points (low single digits).

"While the bank is undergoing a major transformation and showing strong earnings momentum, with estimated average annual EPS growth of 17% between 2025 and 2028, we believe these prospects are already reflected in consensus forecasts," the broker explained.