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Negative Sentiment On Square's Stock Should Start To Turn The Corner

Negative Sentiment On Square's Stock Should Start To Turn The Corner - Square NYSE:SQ

Goldman Sachs’ James Schneider maintains a Buy rating on the company, with a price target of $15.

Strong Quarter

Square reported its adjusted revenue for 2Q16 at $171 million, well ahead of the estimate and the consensus. Adjusted EBITDA was $13 million, well above the estimate of $1.5 million.

The company reported Square Capital advances of $189 million, with five new investors having signed onto the platform, reversing the weakness seen in 1Q.

The company raised its 2016 revenue and adjusted EBITDA guidance.

Investor Sentiment Should Turn

Schneider believes the current quarter “should help turn the tide of negative investor positioning on the stock as Square demonstrates its ability to expand margins and sustain momentum in lending with Square Capital.”

Stronger Outlook

The analyst expects the quarter to be strong across the board, given that margins continue to witness robust expansion, with meaningful upside to the consensus expectations for 2016.

In addition, large merchant traction continues to be on track, with Square reporting 42 percent of GPV from merchants over $125,000 in volume for 2Q. Square Capital was also able to sustain its growth trends, with originations rising more than 130 percent.

“We remain Buy rated as we expect Square to drive significant growth driven by continued growth in payment processing, along with cross-selling ancillary services into its base of >2 million merchants,” Schneider stated.

Although most investors are not confident of the company’s ability to ramp margins, Schneider expects Square to drive incremental profitability as it builds scale outside payments.

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DateFirmActionFromTo
Aug 2016BTIG ResearchMaintainsBuy
Aug 2016Morgan StanleyMaintainsEqual-weight
Aug 2016BarclaysMaintainsOverweight

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