Pacific Crest has upgraded Square Inc SQ to Overweight on optimism that the company is set to deliver positive surprises over the next year, driven by payments and opex efficiency.
Justification For Rating
“Our in-depth work on payments, delivery, and lending leads us to believe that Square is set up for a consistent series of positive fundamental surprises over the next year. Payments and opex upside may shift focus to incremental profitability and cash flow, leading to a positive rerating of the stock,” analyst Josh Beck wrote in a note.
Catalysts Ahead
In addition, Square could benefit from potential U.K. expansion, partnerships (e.g., Vend), and software (e.g., instant deposit). Though these opportunities remain nascent, Beck believes these bets could evolve into meaningful opportunities.
Further, the analyst sees potential for 2017 EBITDA to reach $120 million, while a Caviar improvement or exit and scaling new lending products could offer further upside.
Beck’s price target of $15 is based on 20.5x 2018 EV/FCF, which “we believe skews the risk/reward positive despite significant share volatility.”
At the time of writing, shares of Square rose 5.18 percent to $12.49.
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