Stifel Turns Bullish on Square (SQ); Rating Raised to 'Buy' with $15 Price Target
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(Updated - August 23, 2016 9:34 AM EDT)
Stifel upgraded Square (NYSE: SQ) from Hold to Buy with a price target of $15. Analyst Scott W. Devitt said he is more confident in the sustainability of Square's core business growth, its ability to scale software services, and the company's ability to move upmarket.
"After three public quarters of consistent execution across the top and bottom-line we revisited the three debates we highlighted in our initiation and came away feeling more confident about the company’s growth/profitability outlook, competitive position, and ancillary products/services expansion," said Devitt."Valuation and limited visibility into the company’s ability to execute against an increasingly competitive landscape kept us neutral initially. Currently shares are trading near the same level as when we launched (compared to the S&P 500 up 8.5% over the same period) and we have seen strong execution in the development of the platform, have more clarity around the debates, and are past two lock up expirations."
The analyst continued, "Square has generated better than expected top-line growth despite investor concerns surrounding the competitive threats and the size of the actual addressable market. We believe the company can continue executing on the top-line with the extension of products/services (effectively widening the TAM), continued momentum with larger merchant adoption, and ongoing tailwinds from the secular shift to electronic payments as well as the transition to EMV."
Discussing Square’s ancillary businesses, Devitt said, "Software services have expanded to 7.3% of adj. net revenue in 2Q:16 (up from 4.9% in 3Q:15). Additionally, Square Capital has gained considerable traction and recently just expanded off-platform with the Upserve partnership. The company also broadened its other software services including adding invoices, instant deposits and CRM which has seen strong attach rates, and introduced an open API and app store that gives merchants access to services that Square does not offer directly. Given the positive trends in this business we are incrementally more constructive on Square’s ability to continue its trajectory based on the growing larger merchant mix (higher attach rates) and growing capital business which employs a unique payback structure that offers Square greater visibility."
Shares of Square closed at $11.82 yesterday.
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