Why Are Analysts Losing Confidence in Square Stock?



Square (SQ) stock has remained highly volatile this year. The company’s troubles started in October 2018 when CFO Sarah Friar decided to leave the company. Friar exited Square to join Nextdoor as its CEO. Friar was replaced by Amrita Ahuja, who left Activision Blizzard to join Square in January 2019.

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Square stock is struggling

Square stock gained in January and February but started falling for the next few months. Its stock regained momentum in June, but it started falling after the company released its Q2 results on August 1. SQ stock closed 1.6% higher to $59.25 on September 16. The stock is trading 41.8% lower from its 52-week high of $101.75 and is trading 18.9% higher than its 52-week low of $49.82.

On a year-to-date basis, Square stock has risen by 5.6% through September 16. Square has significantly underperformed its peers this year. In comparison, Square’s peers PayPal (PYPL) and Shopify (SHOP) have returned around 26.7% and 144.1%, respectively, through September 16. The S&P 500 has also surged about 20% year-to-date.

Analysts have changed their views on Square stock

Most of the analysts gave “buy” or “hold” ratings on Square stock. However, the number of analysts with “sell” ratings on the stock increased over the past three months. In contrast, the number of analysts with “buy” or “hold” ratings has decreased during this period.

In June, around 8.6% of analysts had “sell” ratings on SQ stock, which decreased to 5.7% in July. However, analysts with “sell” ratings increased to 8.6% in August and 13.2% in September to date.

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Around 45.7% of analysts had “buy” ratings on Square stock in June and July. This number decreased to 42.9% in August and 42.1% in September to date. On June 17, 45.7% of analysts had “hold” ratings, which decreased to 48.6% in both July and August. On September 17, 44.7% of analysts had “hold” ratings on the stock.

Currently, analysts covering Square have a 12-month target price of $81.53 on the stock. On September 16, the stock was trading at a discount of 27.3% to analysts’ 12-month target price. Its median target price is $80.00 on the same date.

Analysts’ upgrades and downgrades on SQ stock

On September 16, Evercore ISI slashed its price target on Square stock to $50 from $64. The Evercore analyst believes that the stock is overvalued and expects some downside risk in the stock.

On September 12, Canaccord Genuity analyst Joseph Vafi also downgraded the rating and price target on Square stock. Vafi lowered Square’s rating from “buy” to “hold” and slashed its price target from $88 to $64.

On the contrary, Citigroup raised the price target on Square to $95 from $90 on September 10. SunTrust Robinson Humphrey increased its price target on Square to $80 from $75, and it raised its rating to “buy” from “hold” on September 3.

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Square expects weak growth ahead

Square stock has tumbled nearly 27% since the company reported its Q2 earnings results. Although the company posted upbeat earnings and revenues in Q2, investors were disappointed by the company’s lower-than-expected third-quarter guidance.

Square’s revenues increased 46% YoY in the second quarter, but its growth rate decelerated from the preceding quarters. Square’s revenue growth was 59% YoY in the first quarter, 64% YoY in Q4 2018, and 68% in Q3 2018.

The company’s gross payment volume also grew 25% YoY to $26.8 billion in Q2. However, its volumes missed the analysts’ expectation of $26.9 million. Additionally, the rate of payment volume growth also remained sluggish in the past three consecutive quarters.

Square also gave soft guidance for the upcoming quarter and the full year. Square expects Q3 earnings of $0.18–$0.20 per share and 2019 profits of $0.74–$0.78 per share. Wall Street analysts anticipate earnings per share of $0.21 in Q3, up 58.5% YoY. Analysts also expect Square’s full-year profits to grow 64.2% YoY to $0.77 per share.

The online payments processor predicts third-quarter revenue of $590 million–$600 million. For 2019, Square expects revenue of $2.25 billion–$2.28 billion. Analysts estimate its Q3 revenue to grow by 38.6% YoY and by 43.2% YoY in 2019.


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