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Craig-Hallum No Longer A Square Bear, Says Risks Priced Into Stock

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Craig-Hallum No Longer A Square Bear, Says Risks Priced Into Stock

The bearish case for Square Inc (NYSE: SQ) can no longer be justified, as the stock's decline since its 2018 peak now reflects multiple concerns, according to Craig-Hallum.

The Analyst

Bradley Berning upgraded Square's stock rating from Sell to Hold with a price target lifted from $55 to $63.

The Thesis

Square's stock traded above $100 per share in late 2018, but its current valuation near $60 per share factors in multiple headwinds, Berning said in a Wednesday upgrade note.

The headwinds include the following, the analyst said: 

  • Decelerated revenue due to growing competition.
  • A push to boost margins that has come at the expense of seller transaction growth.
  • Seller margin expansion was used to finance CashApp growth and drive EBITDA margins, which resulted in decelerating revenue growth in transaction volumes.

The company's own comments at a recent conference "clearly signaled" it plans on overseeing new investments to drive growth, he said.

For example, hardware costs were lowered by 20%, and online and brand investments from the second quarter are likely to be recurring in nature.

Craig-Hallum is now modeling for Square to invest 2.7% to 3.7% of revenue in incremental spending, with adjusted EBITDA will likely expanding 1.65% in 2020.

The stock's valuation isn't compelling enough to recommend investors pull the trigger and be buyers of the stock, Berning said. 

Price Action

Square shares were down 0.3% at $59.38 at the time of publication Wednesday. 

Related Links:

Canaccord Genuity Upgrades PayPal, Downgrades Square

Bank Of America Cuts Square Target Due To Questions About 2020 Guidance

Photo courtesy of Square. 

Latest Ratings for SQ

DateFirmActionFromTo
Feb 2021Morgan StanleyMaintainsEqual-Weight
Feb 2021GuggenheimUpgradesNeutralBuy
Feb 2021Truist SecuritiesMaintainsBuy

View More Analyst Ratings for SQ
View the Latest Analyst Ratings

 

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