Many payments stocks are 'defensive plays' -- but not Square's, says analyst
By Emily Bary
Block's stock downgraded at Oppenheimer
Payments stocks including Visa Inc., Mastercard Inc., PayPal Holdings Inc. and Global Payments Inc. remain "defensive plays" in the current inflationary landscape, but Block Inc.'s stock carries risk, according to one analyst.
Oppenheimer's Dominick Gabriele downgraded shares of the Square parent company to perform from outperform late Tuesday, writing of his caution on the name -- especially after a recent rally that sent shares shooting up 43% over three months.
"Given [Square's] micro/small merchant (vs. peers) seller focus, volumes could swing more wildly in a downturn," he said. "In Cash App we think revenue growth is likely slower than anticipated given [that the] mid-/low-income consumer is not likely to have significant stimulus funds" by the second half of 2023 or the start of 2024.
Additionally, Gabriele worries that Cash App, a mobile wallet with a heavy focus on the U.S. market, could have a more difficult time driving account growth due to its current penetration levels.
The recent surge in Block's stock (SQ) could "evaporate," in Gabriele's view, given his stance that stocks haven't yet bottomed.
He has a more upbeat view on other areas of the payments universe, including the card networks. Visa (V) and Mastercard (MA) are "strong defensive plays, and [Visa] remains one of our top picks."
PayPal (PYPL) has been a controversial name over the past year as the company works through its post-COVID hangover and looks to strip costs out of the business, but Gabriele has a bullish rating on the name.
"Unlike Block, investors are focused on [PayPal's earnings per share] and we think [PayPal] has the ability to meaningfully cut costs which would be upside to our expectations," he noted, even though his revenue forecasts for 2023 and 2024 are below the consensus view.
(END) Dow Jones Newswires
January 25, 2023 16:30 ET (21:30 GMT)
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