U.S. Markets open in 6 hrs 54 mins

Rosenblatt Picks A Winner Between Square And PayPal

Wayne Duggan

Square Inc (NYSE: SQ) and Paypal Holdings Inc (NASDAQ: PYPL) are two of the clear leaders in the high-growth digital payments space. However, one stock might be a safer bet given their relative valuations.

The Analyst

Rosenblatt Securities analyst Kenneth Hill initiated coverage of Square with a Neutral rating and $68 price target and PayPal with a Buy rating and $126 target.

The Thesis

Hill said upside for both payment stocks over time will hinge on growing their ecosystems, geographic reach and customer base. Both companies will also need to evolve their technology and services over time.

Hill said determining an accurate value for these two stocks is challenging given high expectations are already priced in. However, he said PayPal has the better chance of raising expectations even higher moving forward.

“While both names have a little hair on them after 2Q's update, we see PYPL as a steady and strong grower, all at a reasonable price, forming the basis for our Buy rating,” he wrote in a note.

Despite a hiccup in the second quarter. Hill said PayPal’s long-term outlook is right on track, and its shares trading at under 30 times projected 2020 EPS is an attractive entry point.

For Square, Hill said the company has plenty of merchant and consumer growth opportunities, but investors are concerned about long-term margin potential and lack of clarity on monetizing the Cash App.Hill said Square is trading at about 56 times his 2020 EPS projection, making it difficult to recommend the stock at these levels.

Price Action

PayPal traded around $108 per share on Tuesday, while Square traded at $64.45 per share.

Related Links:

What Analysts Think About Square's Post-Earnings Prospects

Analysts Discuss Libra's Impact On Facebook, Cryptocurrencies And The Payments Market

Latest Ratings for SQ

Date Firm Action From To
Aug 2019 Initiates Coverage On Neutral
Aug 2019 Maintains Market Perform
Aug 2019 Downgrades Underperform

View More Analyst Ratings for SQ
View the Latest Analyst Ratings

See more from Benzinga

© 2019 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.