BTIG Downgrades Square As Shares Are Now Fairly Valued

Shares of Square Inc SQ have surged almost 40 percent since June 27. BTIG’s Mark Palmer downgraded the rating on the company from Buy to Neutral, while removing the price target of $12, at which the shares are currently trading.

Square’s shares had dipped below the $9 mark, the price at which they were sold in the company’s IPO in November. The pressure was caused by concerns over growth in Square’s expenses to a level at which the ability to achieve profitability would be threatened.

Concerns around whether Square Capital’s ability to retain and add investors key to the functioning of its marketplace platform exerted further pressure on the company’s shares, analyst Palmer noted.

Shares Get A Boost

On August 3, Square released robust 2Q16 results, with strong revenue and total payment volume growth. Moreover, the company achieved higher profitability on an adjusted EBITDA basis than the schedule that management had set out, Palmer mentioned.

Square Capital also addressed concerns around its future funding with the announcement of five additional investors to its platform.

Concerns Remain

“SQ’s rebound has given rise to renewed questions about what multiple should be assigned to the company’s projected adjusted EBITDA. While we felt comfortable assigning a 13x multiple to our 2020E adjusted EBITDA of $519mm discounted back at 10% to arrive at a $12 value for SQ shares, we think additional substantiation of the company’s growth trajectory is necessary before a higher multiple would be merited,” the analyst wrote.

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