U.S. markets closed

Square Faces Risk From Struggling Smaller Businesses, BofA Says In Double Downgrade

Priya Nigam

Shares of Square Inc (NYSE: SQ) have gained around 28% year to date.

Although the gradual reopening of the U.S. economy may be an incremental positive for brick-and-mortar merchants, small- and mid-sized companies have yet to witness a trough in churn, according to BofA Securities.

The Square Analyst

Jason Kupferberg downgraded Square from Buy to Underperform with an unchanged $84 price target. 

The Square Thesis

While stimulus funds may provide temporary relief, a significant number of small- and mid-sized businesses may struggle to remain afloat, especially if the economy reopens only partially, Kupferberg said in the Monday downgrade note. (See his track record here.)

Around 75% of Square’s payment volume comes from merchants with less than $500,000 in annual card volume, the analyst said. Despite this backdrop, the stock has outperformed the S&P500 by around 4,000 basis points so far this year, he said. 

Although the consumer-facing Cash App business is performing well, the Seller segment represents around 70% of the company, Kupferberg said.

The reopening of the US economy is uneven, creating uncertainty around a recovery in Square’s gross payment volume, which the analyst said “will likely vary significantly across a range of spending categories.”

While expressing optimism over Square’s competitive positioning in the long-term, BofA said wrote the stock “has moved too far and too fast relative to its near-term fundamental prospects.”

SQ Price Action

Shares of Square were down 2.18% at $78.51 at the time of publication. 

Related Links: 

Along With Dramatic Jobs Data, Investors Scrutinize Recent Earnings From Uber, Square

10 Biggest Price Target Changes For Friday

Photo courtesy of Square. 

Latest Ratings for SQ

Date Firm Action From To
May 2020 Stephens & Co. Downgrades Overweight Equal-Weight
May 2020 B of A Securities Downgrades Buy Underperform
May 2020 Barclays Maintains Overweight

View More Analyst Ratings for SQ
View the Latest Analyst Ratings

See more from Benzinga

© 2020 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.