Square Upgraded To Buy As It Reaches Crucial Inflection Point

Deutsche Bank upgraded shares of Square Inc (NYSE: SQ) and raised its price target, premised on the firm's view that the company can take market share, as evidenced by strong above-market revenue growth as well as significant scale efficiencies. The firm also noted that the company is now at an important inflection point, as it turns toward profitability even while maintaining industry leading growth rates.

Well Positioned To Capitalize On Industry Trends

Analyst Bryan Keane noted that the company has delivered 40–50 percent year-over-year growth in GPV and 50–65 percent growth in adjusted revenues since its IPO. The analyst believes the company is well positioned to capitalize on the many positive trends in the industry, including the growth in micro and small business, electronic payments and the industry move toward integrated solutions.

Street Estimates May Prove Conservative

The fact that the company owns its own platform, according to Deutsche Bank, can help it to gain and retain clients better than its peers. Deutsche Bank believes the company's current fourth quarter guidance and the consensus estimates for 2017 and 2018 could prove conservative.

Raising Rating, Price Target

As such, the firm raised the rating on the company's shares to Buy from Hold and lifted its price target to $17 from $13. The firm is of the view that Square's current valuation of just 3.5 times its calendar year EV/adjusted sales is inappropriate and instead feels a 5 times EV/adjusted sales on calendar year 2018 estimates is appropriate.

At the time of writing, Square was trading up 3.07 percent at $13.10.

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