Shares of payments processor and merchant services provider Square Inc. (SQ) are up nearly 4% Thursday afternoon on a bullish note from a team of analysts on the Street that expects the stock to continue to rally on its increasingly diversified product suite.
In a note to clients Thursday titled "The World Is Square," Credit Suisse analyst Paul Condra increased his rating on the tech stock from neutral to outperform, applauding Square's investment priorities, traction with larger merchants and the growth of its peer-to-peer Square Cash app.
"Square's evolution from a payment company to a differentiated consumer and merchant services platform increases our conviction that the company can extend its business well beyond micro-merchants to include [small- and medium-sized businesses] and middle-market companies," wrote Condra.
Beyond the 1%
While Square initially took off as a provider of card readers for small- and medium-sized brick-and-mortar businesses, it has expanded well beyond the payments space with services such as food delivery, lending and inventory management and has recently dabbled in the cryptocurrency space. (See also: Square Seen Rising Higher on Bitcoin, M&A.)
Credit Suisse estimates that the Silicon Valley fintech platform, headed by Twitter Inc. (TWTR) founder and Chief Executive Officer Jack Dorsey, has only "penetrated about 1% of its addressable opportunity," as cited by MarketWatch. As for the $2 trillion in payment volume generated by global small- and medium-sized business, he estimated that Square has captured about 3% to 4% of the market.
“We view the core payment opportunity as very large,” wrote Condra. “We believe crypto currencies are not going away and expect that over time they are likely to find more applicable use cases. While this is a small opportunity currently, we view SQ as among a handful of companies—and the only public one—at the forefront of shaping the evolution of this industry.”
At a price of $70.98, SQ stock has gained a whopping 105% year-to-date (YTD), far outperforming the S&P 500's 5.1% return and the Nasdaq Composite Index's 13.6% increase over the same period. Condra upped his price target by 80% to $81, reflecting a 19% upside from Wednesday close. (See also: Square to Soar on Crypto Potential, Say Bulls).