Goldman Sachs Initiates Linx With Bullish Rating On Solid Fundamentals

Although shares of Linx SA ADR LINX suffered significant volatility in 2019, which could continue in the near term, the company’s solid fundamentals could drive growth, according to Goldman Sachs.

The Analyst

Goldman Sachs’ Diego Aragao initiated coverage of Linx with a Buy rating and a price target of $11.

The Thesis

Linx reported disappointing results for the third quarter of 2019 and recorded slower-than-expected progress from Linx Pay, although this was partly offset by the acquisition of SetaDigital and improved macroeconomic trends, Aragao said in the initiation note.

He added, however, that the company had been “reinforcing its distinguished ecosystem to become a one-stop-shop for all-size retailers in different verticals, providing a fully integrated platform for brick-and-mortar and digital customers in Brazil.”

Linx had also invested in building an innovative payment solution to facilitate the end-to-end sales process, the analyst mentioned. He added that this solution leveraged the company’s “deep knowledge of the retail sector and clients, acquired over the past 20 years.”

Although the financial benefits from the new initiatives could take time, the setback has largely been priced into the stock, Aragao said. The current share price represents “a good entry point,” given that the new businesses could enable the company to sustain organic top-line growth of 15%-20% in the foreseeable future, the analyst wrote.

Price Action

Shares of Linx were trading up 2.12% to $8.66 at time of publication Tuesday.