Shares of Square Inc (NYSE:SQ) have gained around 28% year to date.

Although the gradual reopening of the U.S. economy may be an incremental positive for brick-and-mortar merchants, small- and mid-sized companies have yet to witness a trough in churn, according to BofA Securities.

The Square Analyst

Jason Kupferberg downgraded Square from Buy to Underperform with an unchanged $84 price target. 

The Square Thesis

While stimulus funds may provide temporary relief, a significant number of small- and mid-sized businesses may struggle to remain afloat, especially if the economy reopens only partially, Kupferberg said in the Monday downgrade note. (See his track record here.)

Around 75% of Square’s payment volume comes from merchants with less than $500,000 in annual card volume, the analyst said. Despite this backdrop, the stock has outperformed the S&P500 by around 4,000 basis points so far this year, he said. 

Although the consumer-facing Cash App business is performing well, the Seller segment represents around 70% of the company, Kupferberg said.

The reopening of the US economy is uneven, creating uncertainty around a recovery in Square’s gross payment volume, which the analyst said “will likely vary significantly across a range of spending categories.”

While expressing optimism over Square’s competitive positioning in the long-term, BofA said wrote the stock “has moved too far and too fast relative to its near-term fundamental prospects.”

SQ Price Action

Shares of Square were down 2.18% at $78.51 at the time of publication. 

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Photo courtesy of Square.