UBS analyst Eric Wasserstrom affirmed his price target for Square’s stock at $54.
Square shares recently traded at $59.90, up 0.8%. The stock has dropped 11% over the past three months, compared with a 14% decline for the S&P 500.
He acted on the rating because the coronavirus pandemic has sent consumer spending reeling. And that means less activity and revenue for Square.
“Our prior thesis centered on our expectation that Square's investments in 2020 would drive reacceleration of revenue growth and margin expansion in 2021,” Wasserstrom wrote in a report cited by Bloomberg.
“We no longer have conviction in that view in the context of currently devolving consumer spending trends.”
In March, UBS lowered its earnings estimates for 2020 and 2021 in light of the coronavirus scourge. But even those numbers may prove overly optimistic because Square relies heavily on in-store transactions, Wasserstrom said. During the pandemic many stores have closed.
Morningstar analyst Brett Horn also sees trouble for Square as a result of the pandemic.
“Its reliance on relatively small merchants could be a material negative for the company in a downturn, as small merchants could fail in large numbers,” he wrote last week. “The company has never been tested on this front.”
Square reported on Monday that the government had accepted it as a lender in the Paycheck Protection Program, which offers loans to small businesses to prevent them from having to let their workers go.