Square stock jumps 5% as analyst says the fall is over

Square Inc.’s stock has struggled since Raymond James analyst John Davis turned bearish in late January, but now he thinks the company has a key catalyst that could allow it to beat expectations as the year progresses.

Davis upgraded Square shares SQ, +6.13% to market perform from underperform on Tuesday, arguing that the company’s new business-focused debit card is gaining traction and could become a source of meaningful incremental revenue. He estimates that the card could add $100 million to Square’s revenue by the end of 2020 and do “just enough” to help Square top expectations in the second half of 2019.

Shares are up more than 5% in Tuesday trading.

Square posted a relatively small revenue beat during the first quarter, and Davis expects another “modest” beat for the second quarter, when Square delivers its latest results on Aug. 1. Still, he sees room for the company’s third-quarter or full-year outlook to positively surprise.

“With only a modest beat in 1Q, significant deceleration in 2Q organic subs and services growth now well understood, and margin estimates falling, we feel the majority of our initial thesis played out and do not see another negative catalyst on the horizon,” Davis continued.

Before the upgrade, Square shares had dropped 3.7% since Davis made his bearish call on Jan. 29, while the S&P 500 SPX, -0.04% had ticked up 13%. Shares of peers PayPal Holdings Inc. PYPL, +0.96% Visa Inc. V, +0.66% and Mastercard Inc. MA, +0.63% all posted gains of more than 25% over that span.

Of the 35 analysts who track Square’s stock, 15 have buy ratings, 17 have hold ratings, and three have sell ratings. The average price target is $82.10, 6% above current levels.

Though Square shares have rallied 38% so far this year, compared with a 19% rise for the S&P 500, the stock is still trading below its high of $101.15 from the fall.

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