Square Cut to Sell by Compass Point on 'Continued Headwinds' From Coronavirus Shutdown

Square is downgraded to sell as an analyst sees 'material headwinds" to the company's total payment volume and revenue due to its exposure to small businesses.
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Square  (SQ) - Get Report was downgraded to sell from neutral by an analyst from Compass Point who said he expects the mobile payments platform will suffer in the current environment created by the coronavirus pandemic.

Shares of the San Francisco-based company were sliding 3.5% to $61.30.

Analyst Michael Del Grosso, who left his price target unchanged at $50, said in a note to investors that he believes the economic shutdown caused by the outbreak will result in "continued material headwinds" to the company's total payment volume and revenue due to its "significant exposure" to small businesses - especially the "hard-hit" food services and retail sectors.

The analyst said that current Wall Street estimates do not adequately take into account the "precipitous decline that should be expected in the current environment."

Del Grosso said he anticipates a 46% consolidated decline in total payment volume in the second quarter, whereas current estimates are calling for a 17% year-over-year drop.

The analyst said he sees a "significant disconnect with reality" because most major cities have yet to reopen their economies and do not plan on doing so for at least the next several weeks.

Del Grosso is the latest Wall Street analyst to downgrade Square. Last week, UBS analyst Eric Wasserstrom cut his rating on the  payments and lending company to neutral from buy. 

Wasserstrom said that the coronavirus pandemic has sent consumer spending reeling, resulting in less activity and revenue for Square.

In addition, Raymond James analyst John Davis last week cut his rating on the stock to underperform from market perform and slashed his price target to $41 a share.

Davis contended that Square's stock price had not yet caught up with a likely steep decline in the company's bottom line as the coronavirus crisis has deepened over the past few weeks, crippling restaurants and retailers.