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Q2 Beat From Square May Not Push Stock Significantly Higher

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Q2 Beat From Square May Not Push Stock Significantly Higher
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Despite reporting a second-quarter earnings beat, Square Inc (NYSE: SQ) still hasn’t found a bull at Credit Suisse.

Analyst Paul Condrareiterated a Neutral rating on the shares and raised his price target from $25 to $26, just 40 cents above Thursday’s open.

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The ‘Numbers Were Solid…’

Square’s EPS for the quarter was 7 cents compared to the Street’s projected 5-cent loss. Sales also beat by about $16 million, coming in at $552 million.

The gains were led by gross payment volumes, which grew by 32 percent, and helped by 99 percent growth in subscription and services revenue. Both were ahead of Condra’s estimates.

The company also set EPS guidance for the third quarter and full year well ahead of consensus estimates and sales guidance for both on the high end of estimates.

Related Link: It's Hip To Be Square: Another Beat And Raise In Q2

But ‘Expect Mixed Response’

“While we expect the revised outlook will help support the positive sentiment on the name, it may not be enough to push the stock materially higher,” said Condra in a note.

The analyst raised his EBITDA forecast from $129 million to $138 million, but believes investors have already priced that in. EBITDA guidance was set for $120 million‐$128 million.

The company’s one-time $2.7 million debt write-off is also “a poignant reminder that [Square] is indeed a lending business” and “may stoke near-term credit concerns,” according to Condra.

He continued though, saying, “We think it unlikely to be indicative of worsening credit trends and we believe the overall growth remains the main attraction.”

Canaccord Genuity’s Michael Graham noted many of the same points, reiterating Hold rating on the stock and raising his price target from $18 to $26.

“In short, the business is clearly performing admirably,” said Graham. “That said, while we have missed the stock's run since last fall, we are nervous about not enough near-term profit support for the valuation and continue to wait for the stock's inherent volatility to provide an opportunity to become more constructive.”

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At time of publication, shares of Square were down 3.02 percent at $25.66.

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Image Credit: By Mybloodtypeiscoffee (Own work) [CC BY-SA 4.0 (http://creativecommons.org/licenses/by-sa/4.0)], via Wikimedia Commons

Latest Ratings for SQ

DateFirmActionFromTo
Nov 2017BTIG ResearchDowngradesNeutralSell
Nov 2017Wells FargoInitiates Coverage OnMarket Perform
Nov 2017Credit SuisseMaintainsNeutral

View More Analyst Ratings for SQ
View the Latest Analyst Ratings

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