Credit Suisse Upgrades Square Citing Better Growth In Q3, Solid Fundamentals

Following Q3 2016 results reported by Square Inc SQ, Credit Suisse’s Paul Condra expects higher top line growth and improved leverage for the company, which would justify a higher stock valuation.

Condra upgraded the rating on the company from Neutral to Outperform, while raising the price target from $12 to $15.

Square’s shares appreciated almost 4 percent in after-hours trading following the Q3 release.

“We continue to like Square for its exposure to strong secular tailwinds including not only payments electronification, but payments simplification,” the analyst stated.

The company’s losses narrowed in Q3, but revenues rose 32 percent.

Estimates Revised

The revenue growth estimate has been revised following Q3 results, with Condra expressing greater confidence regarding Square’s scalability, especially since the loss generating hardware sales are expected to decline in 2017.

The 2016 EBITDA estimate has been raised from $15 million to $19 million, while the 2017 and 2018 EBITDA estimates have also been raised.

The analyst expects the company to see EBITDA margins of 23 percent by 2020.

“We believe Square’s years of product investment and brand building put it ahead of the competition for integrated small business payments solutions and expect the company can sustain high 20 percent to mid-30 percent volume growth in the near to mid-term,” Condra added.