What happened
Shares of Square (SQ 3.19%) have pulled back today, down as much as 6%, despite the fact that a Wall Street analyst has gotten increasingly bullish on the mobile payment specialist. Deutsche Bank reiterated its buy rating on Square with analyst Bryan Keane boosting his price target from $255 to $330, which is now the highest valuation estimate on Wall Street and represents approximately 20% upside from yesterday's close. As of 3:15 p.m. EST, the stock was starting to recover and was down just 2%.
So what
Square is positioned for a strong year, with Keane calling the company an "even bigger recovery story in 2021" than it was in 2020. Deutsche Bank also likes the company's exposure to Bitcoin and believes that the cryptocurrency will help boost net revenue in the fourth quarter, but the firm also reduced its estimates on gross payments volume (GPV) and gross profit growth due to headwinds related to COVID-19.
Square's Cash App. Image source: Square.
"However, we see the focus positively turning toward the significant future upside potential in FY21 from stimulus, improving volumes, and ramping services (ie. core flex loans)," Keane wrote in a research note to investors.
Now what
The pace of the macroeconomic recovery and timing of government stimulus remains unclear, which will have impacts on Square's prospects heading into 2021. Deutsche Bank suggests that there is potential upside to its estimates and Square could potentially report gross profit growth as high as 85% for the full year, which is well above current expectations. Keane expects Square to deliver operating leverage while still investing in future growth.
Square is scheduled to report fourth-quarter earnings results next week on Feb. 23 after the close.
