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Could Square Prove Raymond James Wrong?

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Feb. 7 2019, Published 8:11 a.m. ET

Stock downgraded on lack of growth opportunities

Raymond James recently downgraded Square (SQ) and assigned the stock a price target that suggested a huge downside potential. In a note to investors cited by CNBC, the firm downgraded Square to “underperform” from “market perform.” At the same time, Raymond James set a $56 fair value for Square stock, suggesting the stock could end the year down around 27%.

According to Raymond James, Square lacks strong growth opportunities. The firm also thinks getting into the banking business would cause more problems for Square and negatively affect its stock. Square is seeking a license to allow it to open an industrial bank through which it would be able to issue loans and accept deposits from business customers.

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Square price target raised at Nomura Instinet

Although Raymond James is doubtful of Square’s prospects, not everyone on Wall Street shares this view. In September, Nomura Instinet restated its “buy” rating on Square and raised its price target on the stock to $125 from $86, according to a note to investors cited by Bloomberg. Square stock is trading in the $70 price range. Nomura Instinet cited Square’s growing seller customer base, growing revenue, and marketing efficiency as some of the reasons for being bullish on the stock. Larger sellers, meaning business customers that make more than $125,000 in annual sales, accounted for 52% of Square’s gross payment volume in the third quarter of 2018, up from 47% a year earlier.

Square’s revenue rose 51% YoY to $882 million in the third quarter. PayPal (PYPL), Amazon (AMZN), and On Deck Capital (ONDK) grew their revenues by 14%, 29%, and 45% YoY, respectively, in that quarter. Revenue jumped 3.7% YoY for First Data Corp (FDC) in the third quarter.

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