Square (SQ) Stock Gains on Upgrade to Overweight at Atlantic Amid Substantial Growth Prospects

October 12, 2021 7:23 AM EDT
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Price: $253.06 -4.53%

Rating Summary:
    34 Buy, 16 Hold, 3 Sell

Rating Trend: = Flat

Today's Overall Ratings:
    Up: 16 | Down: 18 | New: 32
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Atlantic Equities analyst Kunaal Malde upgraded shares of Square (NASDAQ: SQ) to Overweight as he sees a number of growth opportunities ahead.

Of course, the Cash App and its growth outlook are at the core of the upgrade thesis.

“Cash App has grown rapidly through the pandemic, and we model a low-30s gross profit CAGR to $3.8bn by 2023. Cash App is diversifying and improving the quality of its revenue mix as penetration of products such as Cash Card increases. Near-term comps are tough, but several products across investing, lending and tax could be quickly added as monetisation drivers and there are many avenues for new product creation longer-term. In a competitive market, fast product development, a strong brand and P2P network effects all support Cash App's ongoing leaders,” Malde said in a client note.

The Afterpay acquisition is seen as “highly complementary” for Square given that it will add a BNPL business at scale, commerce capabilities, and significant potential synergies. Malde expects Afterpay to grow in the 40% range and generate $1.5 billion in gross profit by 2023.

Finally, Malde has also taken note of the acceleration in Square’s merchant acquisition business.

“Square is accelerating its merchant acquiring share gains, payment volume growth rates are tracking above historical levels, and the positive momentum in hardware is an encouraging leading indicator. Longer-term, Square's move upmarket, broadening banking services and international expansion should contribute to ongoing c.20% growth to reach $3.3bn 2023 gross profit.”

Atlantic has a $300.00 per share price target on Square. The Square stock price is up 1.7% in pre-open Tuesday.

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