Analysts moving to sideline on Square as growth seen priced in
Two Wall Street analysts downgraded Square (SQ) to Neutral-equivalent ratings after assuming coverage of the stock. Jefferies analyst John Hecht argued that while he sees "broadly positive fundamentals" for the company, the shares seem fairly valued at current levels. Voicing a similar opinion, Oppenheimer analyst Glenn Greene told investors that Square's small and midsized business value proposition, strong execution and likely continued robust growth are tempered by valuation considerations. VALUATION CONCERNS: In a research note to investors this morning, Jefferies' Hecht downgraded Square to Hold from Buy and raised his price target on the stock to $63 from $60 after assuming coverage of the name. While the analyst acknowledged that its positioning and secular tailwinds all point to a long runway of profitable growth, he believes the shares are fairly valued and reflect a balance of a strong opportunity set alongside risks such as competition and high growth targets in nascent business segments that requires strong execution. Meanwhile, Oppenheimer's Greene downgraded Square to Perform from Outperform after assuming coverage of the name as his admiration for its SMB value proposition, strong execution and likely continued robust growth is tempered by concerns about the stock's valuation. Greene acknowledged that the company's simple, easy-to-use, and tightly integrated payments and software platform has gained significant traction with U.S. SMBs, driving recent adjusted revenue growth well above its long-term 20%-25% annual target range. Newer products/solutions including Instant Deposit, Caviar, and Capital represent an ever-increasing proportion of revenue and drive quite robust Subscription & Services growth, he contended. However, while Greene is optimistic that Square's robust growth will persist, he estimates that greater than 30%/55% revenue/EBITDA growth compound annual growth rates are priced into shares. As such, he sees "meaningful risk if growth moderates or execution falters." PIPER JAFFRAY UPS TARGET: In a research note of his own, Piper Jaffray analyst Jason Deleeuw raised his price target for Square to $63 from $49 after updating his model to reflect the recent acquisition of Weebly and convertible note issuance. The analyst continues to believe Square's guidance is conservative relative to the revenue growth momentum being driven by its "expanding solution ecosystem for merchants." Nonetheless, Deleeuw reiterated a Neutral rating on the shares, citing an "elevated" relative valuation. PRICE ACTION: In morning trading, shares of Square have dropped almost 1% to $65.88.