Why is Macquarie Bullish on Square (SQ)?

SQ – Square, Inc. is a company that provides software and hardware for point-of-sale transactions.

By Andrew Hecht
Dec 2, 2019

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A bullish trend in the stock
SQ consistently beats the street’s consensus earnings estimates
Macquarie likes this stock

Square, Inc. is a company that provides software and hardware for point-of-sale transactions. The company’s headquarters are in San Francisco, California and is a decade old. The company came to the market in 2015 with an initial public offering price of $9 per share. The stock opened at $11.20 on November 19, 2015. After a dip to $8.06 in February 2016, the stock has continued to climb. SQ shares closed at just above $69 on Friday, November 29.

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A bullish trend in the stock

The bullish trend in SQ shares was almost a straight line from 2016 through 2018.

(Source: Barchart)

As the chart highlights, SQ moved from $8.06 in early 2016 to a high at $101.15 in October 2018 as the stock was more than a ten-bagger over the period. The stock market correction during the final quarter of 2018 took the stock to a low at $49.82 last December. In 2019, SQ shares have consolidated in a range between $52.26 and $83.20 per share.

At $69.12 on Friday, November 29, SQ had a market cap of $29.70 billion. The period of consolidation could be healthy for the prospects of the company’s shares, especially if it keeps on delivering when it reports quarterly earnings.

SQ consistently beats the street’s consensus earnings estimates

Over the past four consecutive quarters, SQ has exceeded the average consensus estimates. In Q3 2019, earnings came in five cents per share above the market’s estimate at 25 cents per share. SQ earned 21 cents in Q2, 11 cents in Q1, and 14 cents in Q4.

In the latest conference call that followed the release of Q3 earnings, Chairman, President, and CEO Jack Dorsey highlighted the versatility and growth potential for SQ’s Cash App. The ability to invest via the product. Moreover, it allows users to purchase fractional shares of stock. When it comes to the company’s suite of products, “Each of these businesses have massive potential when taken along, but the magic really lies in how they will work together. This is fundamentally a new idea, and our entire focus now is on being the greatest and most inclusive financial ecosystem to serve all needs.” (Source: https://finance.yahoo.com/news/edited-transcript-sq-earnings-conference-053537957.html)

Macquarie likes this stock

On November 26, Macquarie’s analyst Dan Dolev initiated coverage on SQ with an Outperform rating. He believes that growing awareness of Cash App with a boost in the company’s marketing effort will add to the company’s 2020 guidance. With the share price at just above the $69 level on November 29, Dolev’s target is $105 per share. SQ’s strong gross payment volume in Q3, rising sales, and marketing efficiency are likely to drive the price of the shares above the all-time peak at just over $100 per share. As of the end of last week, UBS, JP Morgan, and a host of other analysts had buy ratings on SQ shares.

SQ shares were trading at $66.82 per share on Monday afternoon, down $2.30 (-3.33%). Year-to-date, SQ has gained 19.13%, versus a 26.40% rise in the benchmark S&P 500 index during the same period.

About the Author: Andrew Hecht

Andy spent nearly 35 years on Wall Street and is a sought-after commodity and futures trader, an options expert and analyst. In addition to working with StockNews, he is a top ranked author on Seeking Alpha. Learn more about Andy’s background, along with links to his most recent articles. More...