Square (SQ): Cantor Lights Bigger Fuse on Target Expectations

Cantor's Joseph Foresi spotlights 16% in return potential now in the wings for SQ stock.

Cantor analyst Joseph Foresi is out with a bullish research note on Square (NYSE:SQ), firing up his target expectations on the payment company for the following key attractive reasons: rising market penetration, end-user gains, as well as a better margin profile. These strengths stem from SG&A leverage as well as other services dialing up margin contribution. With “Weebly on board” at a $365 million takeover price, Foresi spotlights potential for a killer global footprint ahead thanks to the website builder; especially considering around 40% of Weebly’s 625,000 paid subscribers stand beyond the U.S.

Therefore, the analyst is drawn to SQ’s prospects, reiterating an Overweight rating on the stock while cutting the price target from $51 to $69. This implies a close to 16% upside from current levels. (To watch Foresi’s track record, click here)

Meanwhile, “Square updated guidance for the projected impact from the recently acquired Weebly and for the recent issuance of convertible debt. We expect rapid growth to continue and foresee further margin expansion going forward, driving stock performance,” continues Foresi.

Notably, Weebly’s revenues last year are projected to circle $26 million, which suggests a valuation of around 14x, writes the analyst, who draws attention to Square’s conviction in creating ‘one cohesive solution’ for “entrepreneurs looking to build an online and offline business.”

For context, SQ recently issued $826.5 million in aggregate principle amount of 0.50% convertible senior notes due in five years. The SQ team had boosted the revenue guide for the second quarter from a range of $740 to $760 million up to $744 to $764 million, lifting the adjusted revenue guide from $355 to $360 million up to $362 to $367 million. The adjusted EBITDA outlook continues to be set between $60 and $64 million, with the adjusted EPS guide remaining a range between $0.09 and $0.11. The GAAP EPS guide for the second quarter was scaled back from ($0.04) to ($0.02) down to ($0.08) to ($0.02), factoring in M&A-correlated costs for Weebly and the interest expense stemming from the Issuance of the convertible notes.

SQ jumped up its 2018 revenue guide from $3.00 to $3.06 billion up to $3.03 to $3.09 billion and lifted its 2018 adjusted revenue guide from $1.45 to $1.48 billion from a range of $1.40 to $1.43 billion. The 2018 adjusted EBITDA guide continues to fall between $240 and $250 million while SQ cut back on its 2018 adjusted guide from $0.44 to $0.48 down to $0.42 to $0.46 considering further interest expense. The GAAP EPS guide for the year was scaled back from ($0.04) to $0.00 down to ($0.24) to ($0.28) on back of the Weebly acquisition coupled with interest expense.

Accordingly, the analyst lifts his revenue forecast for the second quarter from $757 million up to $761 million and ramps up his expectations for adjusted revenue from $359 to $366 million. While the analyst reiterates his target for second quarter adjusted EPS of $0.11, he reduces his GAAP EPS forecast from -$0.02 down to -$0.08. For full-year 2018, the analyst hikes his revenue projection from $3.03 up to $3.06 billion and jumps up his 2018 adjusted revenue forecast from $1.42 up to $1.47 billion. Lastly, the analyst maintains his 2018 adjusted EPS forecast of $0.46 while scaling back his GAAP EPS expectations from -$0.02 to -$0.28.

TipRanks indicates caution rules Street-wide expectations when it comes to Square stock. Out of 17 analysts polled in the last 3 months, it might appear to be a largely bullish consensus, with 13 analysts rating a Buy on SQ, 2 maintaining a Hold, and 2 issuing a Sell. However, consider the 12-month average price target of $56.57 reflects roughly 5% in downside potential, exposing apprehension is very much baked into these expectations.

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