Shares of Square (NYSE:SQ) have gotten destroyed today, down by 25% as of 1:30 p.m. EDT, as the coronavirus sell-off continues to wreak havoc on the market. The drop comes shortly after an analyst upgraded the stock to outperform.
Cowen boosted its rating on Square shares this week to outperform while adjusting its price target from $82 to $70. Analyst George Mihalos acknowledges that Square's business is disproportionately exposed to the coronavirus pandemic and the related shutdown of many small and medium sized businesses across the U.S. Over 40% of Square's revenue comes from consumer discretionary companies such as restaurants and retail locations, according to the analyst's estimates.
Square has made progress in growing its business among larger sellers. Merchants that sell over $500,000 represented 27% of gross payment volume in the fourth quarter, and that proportion has been steadily growing over the years.
Mihalos remains confident that Square will be able to weather the short-term downturn, pointing to the company's ample cash position of $2 billion and robust cash flow generation. Looking farther out to 2021 and 2022, Square should be able to deliver "significant margin expansion" as it enters new markets. The sell-off has created "the most compelling entry point in the stock in over three years," according to the analyst.
Square is preparing to host its virtual investor day next week on March 24. Hopefully, the company will provide more commentary about the potential impacts from the coronavirus. Cowen concludes: "We believe downside is limited at the current price and see upwards of 50% upside."