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Why Square (SQ) Stock Looks Like a Buy Heading into Q4 Earnings

Benjamin Rains

Square SQ stock has soared 35% since the start of the year to outpace comebacks from Amazon AMZN, Facebook FB, and other tech powers. Despite Square’s recent climb, shares of SQ rest 25% off their 52-week high, which gives them plenty of runway heading into the company’s fourth-quarter earnings release Wednesday.

Quick Overview

Square has come a long way since Twitter’s TWTR Jack Dorsey founded the firm in 2009 to help micro-businesses and entrepreneurs process credit card payments from their mobile devices.

Today, SQ sells multiple point-of-sale products—including the new Square Terminal, along with software, website services, inventory and employee management solutions, and much more. The fintech firm’s Square Capital leg also provides business financing options and loans of up $100,000.

Meanwhile, Square’s Cash App stands out among competitors like PayPal PYPL and JP Morgan Chase JPM in the quickly expanding peer-to-peer payment industry. The company now allows users to open Visa V debit cards connected only to their Cash App balance. Plus, Square recently improved its Square Reader SDK (software development kit) to allow customers to utilize Square’s back-end ecosystem with their own personalized platform.

 

Q4 Outlook & Earnings Trends

Looking ahead, our current Zacks Consensus Estimate calls for Square’s Q4 revenues to surge 47.4% to hit $908.21 million. This would fall just short of Q3’s 51% top-line expansion and match the year-ago quarter’s revenue growth. The company’s full-year 2018 revenues are projected to climb roughly 48% from $2.21 billion in 2017 to hit $3.26 billion.

Square’s gross payment volume, a widely watched metric, is projected to jump roughly 28% from the year-ago period to $22.97 billion, based on our current NFM estimates. This would nearly match the third quarter’s 29% climb, which was driven by Instant Deposit, its new Cash Card, Caviar food delivery, and Square Capital.

At the bottom end of the income statement, Square’s adjusted quarterly earnings are expected to soar 62.5% to reach $0.13 per share. SQ’s full-year EPS figure is projected to skyrocket 70.4% to hit $0.46. And this bottom-line growth is expected to continue in 2019, with the company’s adjusted full-year EPS figure projected to come in 51% above our current year projection.

Investors should also note that the company has seen completely positive earnings estimate revision activity for Q4 recently, along with solid fiscal 2019 upward estimate revisions.

Bottom Line

Square is currently a Zacks Rank #2 (Buy) and its Most Accurate Estimate, which is based on the most recent analyst estimate revisions, came in $0.01 above our current consensus. SQ also sports an “A” grade for Growth and a “B” for momentum in our Style Scores system. And as we mentioned at the top, SQ’s current price looks relatively attractive for a company that is expected to grow within the blooming fintech space.

Square is scheduled to release its fourth-quarter financial results after the closing bell on Wednesday, February 27. Make sure to head back to Zacks for a complete breakdown of the company’s actual metrics.

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