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RBC Capital Bumps Up Price Target on Square (SQ) Stock; Here’s Why

With valuation potential that has RBC Capital's Daniel Perlin encouraged, the analyst now angles for 19% in return potential for SQ shares.


RBC Capital analyst Daniel Perlin is out with a bullish research note on shares of Square (NYSE:SQ) after diving into valuation and running total addressable market numbers. Anticipating a prospective TAM come 2026 pointing to valuation in the mid-$60s, Perlin sees a “payment monetization engine from its subscription and services business” that has stoked even more confidence.

As such, the analyst reiterates an Outperform rating on SQ stock while lifting the price target from $53 to $65, which implies a 19% upside from current levels. (To watch Perlin’s track record, click here)

The Nilson Report indicates the total U.S. payment market hit $5.1 trillion two years ago- a number that the analyst believes ought to rise to $9.9 trillion come 2026, a 6.8% CAGR on back of the following drivers: “(a) retail sales growth, (b) the secular shift to electronic payments away from cash and (c) new digital payment methods. Assuming SQ can maintain similar share gains achieved from 2014-2017, through to 2026, we estimate that SQ’s GPV will generate a CAGR of 23.5% (’16-’26e) or over 3x the industry growth of 6.8%.”

With these numbers in mind, the analyst angles for Square’s gross payment volume (GPV) to spiral to $409 billion, or 4.1% of total U.S. payment volume by 2026, realizing $4.1 billion in U.S. net revenues. On an international front, the company puts forth payments solutions in Canada to the UK to Australia to Japan- where these international markets take a roughly 4% of total 2017 revenue. Perlin projections that within 8 years, international revenues will yield around $49 billion in GPV coupled with $241 million in net revenues.

“In addition to payments, SQ offers a series of solutions that address the needs of its SMB sellers including website / ecommerce platforms, such as its recent Weebly acquisition; integrated hardware and POS solutions for specific industry verticals including Square for Restaurants, Caviar and Square for Retail; Square Capital; Square Cash / Instant Deposit and Payroll among others. All told, we believe that these solutions represent an additional $2.5B in net revenue by 2026, up from the $253M generated in FY17, representing a CAGR of ~29% (’17-‘26e),” highlights Perlin.

Noting a combined basis in 2026, the analyst calculates the payment company’s net revenues will reach $7 billion, adjusted EBITDA will soar to $2.9 billion, and adjusted EPS will hit $4.81 per share. Notably, these estimates signal a CAGR from 2017 to 2026 of 24% for net revenues, 40% for adjusted EBITDA, as well as 38% for adjusted EPS. Bottom line, considering likeminded market players, including the likes of networks, merchant acquirers, PayPal, and software providers, Perlin wagers SQ stock is on track to trade in a $117 to $135 range come 2026; or $60 to $69 on a net discounted value, discounted ty 10% back to 2019.

TipRanks suggests optimism mingled with apprehension that weighs down analysts’ expectations on SQ stock. Out of 29 analysts polled in the last 3 months, 17 are bullish on SQ, 10 remain sidelined, while 2 are bearish on the stock. However, consider that the 12-month average price target of $50.45 reflects downside potential of 7% from where the stock is currently trading.