Why JPMorgan Is Turning Bullish On Brazil's PagSeguro

Brazil-based fintech company PagSeguro Digital Ltd PAGS offers investors an impressive growth story and it likely ranks as the third-largest digital bank in the country, according to JPMorgan.

The PagSeguro Digital Analyst: Domingos Falavina upgraded PagSeguro Digital's stock from Neutral to Overweight with a price target lifted from $41 to $61.

The PagSeguro Digital Thesis: PagSeguro's most recent disclosure shows it grew its active client count on PagBank from 4.9 million in the second quarter to 6.7 million as of the third quarter, Falavina said in the upgrade note.

Encouragingly, after less than two yearssince its creation, PagBank showed 133 million reais ($24.3) million in banking revenue in the third quarter, or more than 500 million reais on an annualized basis, the analyst said. 

Related Link: Despite Downturn, BofA Says Brazilian E-Commerce Remains Competitive

Looking forward, the digital bank has further room to grow given an estimated 50 million to 60 million people who represent an underbanked client pool, he said. 

PagSeguro's competitors are for the most part private companies, so it is difficult to quantify each company's actual size, Falavina said.

The company likely only trails Nubank and Baco Inter in size, the analyst said. 

Among its peers, PagSeguro boasts a best-in-class rating for its app in both the Apple Store and Google Store, according to JPMorgan.

PAGS Price Action: Shares of PagSeguro Digital were trading higher by 6.27% to $52.02 at last check.