The Ratings Game: Square stock on track for back-to-back record rallies after ‘candid’ business updates
It might not take long for Square Inc.’s stock to top Tuesday’s record day of gains.
Square shares SQ, +18.83% rose 15.8% in Tuesday’s session, marking their best single-day percentage gain on record, but the stock is surging toward an even bigger increase Wednesday. Shares were up 16.6% in midday trading.
The rally comes a day after Square issued an update on its business amid the COVID-19 pandemic. Square is feeling the impact of the novel coronavirus outbreak as city lockdowns crimp consumer spending, but investors appear incrementally more upbeat about the company’s ability to weather the crisis after the company’s latest disclosures.
The payment processor pulled its full-year forecast Tuesday while lowering its outlook for the first quarter. Though Square pointed to “strong growth” in January and February, the company saw a roughly 25% year-over-year drop in gross payment volume (GPV) over the trailing 10-month period and it assumes “further deceleration in overall GPV through the last week of March.”
Square’s stock had been punished in recent weeks over concerns that the COVID-19 outbreak was forcing the closure of many non-essential businesses and could lead to a recession, during which Square’s small-business customers may be especially vulnerable. Its shares have lost 30% over the past month, while the S&P 500 SPX, +2.04% has shed 21%.
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Though analysts still see many uncertainties ahead due to the evolving nature of the pandemic, Instinet analyst Bill Carcache abandoned his bearish stance on the stock after Tuesday’s updates.
“While it’s too early to ascertain the failure rate of Square’s large [small- and medium-sized enterprise] customer base, we no longer believe a reduce rating is appropriate given the 46% decline in shares from their February highs,” he wrote.
Carcache highlighted that Square is working to help its sellers drum up business in new ways, including through curbside pickup options, and has some levers to scale back its operating expenditures. He now rates the stock at neutral while keeping a $ 49 price target.
Barclays analyst Ramsey El-Assal wrote that the company seems to be “managing well” through the disruptions but cautioned that “Square’s exposure to restaurant/retail and [small- and medium-sized businesses] creates heightened uncertainty in the near-term, which we don’t believe will abate in the near term as COVID-19 runs its course.”
He rates the stock at overweight with a $ 95 target price.
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Canaccord Genuity analyst Joseph Vafi said there were puts and takes in the company’s latest “candid” disclosures. On one hand, the company’s Cash App business seems fairly resilient with a boost in peer-to-peer transactions as people move more of their payments to digital means. Still, the company has seen payment volumes in its seller business drop as much as 45% in the past week in areas with the strictest shelter-in-place orders, and said that trend could carry over to other cities if more places begin to adopt similar measures.
“Net net, we have to still like Square given a strong balance sheet and that earnings can remain even modestly positive in a one- to two-quarter trough scenario,” he concluded. “The seller ecosystem will bounce back; and when it does, the Square solutions will grab more share in all the dislocation.”
Vafi rates the stock at buy with a $ 60 target.
Macquarie’s Dan Dolev wrote that the pandemic means “not a whole lot” for Square’s long-term outlook, in his view, as he expects the “drag will likely be a mere bump in the road.”
Dolev was encouraged to hear that Square generates about one-third of its volume from card-not-present transactions and he argued that the company may be able to further limit its reliance on physical stores after the crisis is over. He rates the stock at outperform with a $ 78 target price.