One of 2020’s most prominent trends has been the rise of digital payments. Driven by the continued success of it Cash App, Square (SQ) has made the most of this opportunity. The fintech player has experienced strong growth and as a result the stock has accumulated year-to-date gains of a massive 171%.
Heading into next week’s Q3 earnings (Nov 5 AMC), Deutsche Bank analyst Bryan Keane anticipates another strong showing from the payments industry disruptor.
"We expect SQ to continue executing with improving Seller trends and Cash App strength from stimulus and increased demand for the company's digital solutions driving stronger long term growth rates than before the pandemic,” Keane noted.
In Q3, Keane expects Square to report revenue of $1.913 billion, a 51% year-over-year uptick, and adj. EPS of $0.15 (Street has $0.16) “driven by strong Gross Profit growth of ~33% Y/Y from continued improvement in Seller volumes.”
Keane expects Seller Gross Profit growth to be up 3.8% year-over-year, a “conservative estimate” which he potentially sees rising to 7.2%.
Moreover, the US Census Bureau’s latest data displayed a 77.4% year-over-year increase in 3Q20 business applications - a promising sign for future Seller growth potential.
“Seller should also continue to benefit from strong growth in online channels and international strength as well as improving retention and consumer spend over time,” Keane added.
However, Seller numbers pale in comparison to Square’s rising star – the peer-to-peer Cash App.
In July, Cash App Gross Profit growth cannonballed to 200% year-over-year. Although Keane doesn’t expect the same amount of acceleration in Q3, the analyst calls for 119% year-over-year growth with the possibility of “upside potential to +189% Y/Y.”
“Importantly,” the 5-star analyst notes, “Digital banking adoption and Cash App use for small businesses through Business Accounts has taken off accelerating through the pandemic which we expect to continue.”
Cash App adoption has been helped by the fed’s stimulus efforts and Keane expects the one-time benefits will result in “significant long-term engagement expansion and accelerated lifetime value.“
Furthermore, another round of stimulus could potentially increase Cash App growth.
All in all, Keane reiterated a Buy on SQ shares and with Cash App “driving significant outperformance and the Seller recovery looking more likely to become the next leg of growth,” bumped the price target from $180 to $215. What’s in it for investors? Upside of 26.5%. (To watch Keane’s track record, click here)
Square has decent support amongst Keane’s colleagues with 16 Buys, 6 Holds and 2 Sells all coalescing to a Moderate Buy Consensus rating. However, most feel Square has rallied enough for now. The $170.55 average price target indicates shares will remain range bound for the foreseeable future. (See Square stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.