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Stifel Turns Bullish On Square Despite Q2 Guidance Below The Street's Number

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Stifel Turns Bullish On Square Despite Q2 Guidance Below The Street's Number

Despite Square Inc (NYSE: SQ) issuing second-quarter guidance Wednesday below the consensus estimate, Stifel now sees the bullish case for owning the stock.

The Analyst

Stifel's Scott Devitt upgraded Square from Hold to Buy with a price target lifted from $46 to $55.

The Thesis

Square's "impressive" first-quarter earnings report was highlighted by multiple encouraging read-outs, Devitt said in the upgrade note:

  • Gross payment volume growth of 31 percent to $17.8 billion exceeded the analyst's expectations of 30 percent.
  • Adjusted revenue growth of 51 percent to $307 million marks the fourth consecutive quarter of growth.
  • Subscription and services revenue soared 98 percent to $97 million and rose 22 percent sequentially.
  • Square Capital oversaw 50,000 business loans worth $339 million.
  • GPV growth among large sellers — at least $125,000 in annualized GPV — grew 44 percent year-over-year.

Square's Q2 revenue guidance did come in ahead of estimates, but its EPS guidance of between nine cents and 11 cents per share was below the Street's forecast. Yet the payments company raised its revenue growth guidance from 32-35 percent to 42-45 percent while keeping its adjusted EBITDA guidance unchanged at $240 to $250 million.

Square's decision to reinvest in key strategic areas will generate higher levels of growth and superior margin expansion over the longer term, Devitt said. 

Square continues to position itself so that clients will consolidate even more of their business operations such as payments, e-commerce APIs, invoices and CRM onto Square's ecosystem, the analyst said. This will likely generate a lower churn rate, increased wallet share and the ability to offer an attractive "one-stop solution that no other players in the space can easily replicate." 

Price Action

Square shares were down 0.31 percent at $48.55 Thursday morning. 

Related Links:

Analysts Break Down Square Following Q4 Earnings

Square, Paypal Fall As Amazon Pay Works To Poach Market Share

Photo courtesy of Square. 

Latest Ratings for SQ

DateFirmActionFromTo
Nov 2019MaintainsBuy
Nov 2019MaintainsBuy
Nov 2019MaintainsOverweight

View More Analyst Ratings for SQ
View the Latest Analyst Ratings

Posted-In: payments Scott Devitt Square Capital StifelAnalyst Color Upgrades Price Target Analyst Ratings Best of Benzinga

 

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