On Thursday, JPMorgan (NYSE:JPM) made a bullish move on StoneCo Ltd. (NASDAQ: STNE), upgrading the company's stock from Neutral to Overweight and setting a price target of $20.00. The upgrade reflects a positive outlook on the company's earnings potential and its current valuation in the market.
The financial firm's assessment indicates confidence in StoneCo's growth, citing an estimated 20% compound annual growth rate (CAGR) from 2023 to 2027 for the company's earnings per share (EPS).
The analyst highlighted the attractive valuation of StoneCo's shares, which are trading at approximately nine times the estimated 2025 earnings per share (P/E) and 1.2 times the projected 2025 price to tangible book value (P/TBV).
Despite the recent 20% drop in share price following the company's latest earnings report, which was impacted by one-off items but still met JPMorgan's expectations, the firm sees this as an opportune entry point. The drop brought StoneCo's shares back to levels seen around the time of its Investor Day.
JPMorgan also noted that while the extended period of high Selic rates in Brazil is generally unfavorable for the sector, payment companies like StoneCo are less affected by interest rates compared to others in the industry.
Instead, StoneCo's re-rating is expected to be driven more by its performance in banking services, such as deposit growth and healthy credit expansion.
The price target set by JPMorgan suggests a roughly 50% upside potential from StoneCo's current share price, maintaining the target through December 2024.
This optimistic stance from the financial institution indicates a belief in the resilience and potential of StoneCo's business model, even amidst challenging macroeconomic conditions.
In other recent news, StoneCo Ltd. reported significant growth in its first quarter 2024 earnings, with a 24% year-over-year increase in Total Payment Volume (TPV) in payments and a substantial expansion of its active client base in the banking segment.
Despite these positive indicators, StoneCo's first quarter results for the fiscal year 2024 fell short of expectations, with revenues and EBIT (Earnings Before Interest and Taxes) missing analyst projections.
However, the company's financial services vertical, particularly the banking segment, has shown considerable strength. Active banking clients tripled year-over-year, and client deposits increased by 52.1%.
Analysts have provided a mixed financial outlook for StoneCo. While the company has maintained its guidance for FY24/FY27, indicating confidence in its long-term strategy, there are concerns about the short-term performance due to the recent miss in quarterly earnings.
Evercore ISI, for instance, has revised its 2024E and 2025E adjusted EBT upwards, ahead of consensus estimates, and raised EPS forecasts to R$7.40 and R$9.90 for 2024E and 2025E, respectively.
On the other hand, Morgan Stanley (NYSE:MS) maintained its Equalweight rating on StoneCo with a consistent price target of $16.50, while Citi reaffirmed its Buy rating on shares of StoneCo with a steady price target of $20.00.
These are recent developments in StoneCo's financial landscape, indicating a robust growth trajectory despite some short-term performance concerns.
The company's strategic focus on expanding its banking and credit initiatives, coupled with its continued resilience in the face of competition and external challenges, underscores its potential for continued success in the financial technology sector.
InvestingPro Insights
Following JPMorgan's upgrade of StoneCo Ltd. (NASDAQ: STNE), InvestingPro data offers additional insights into the company's financial health and market performance. With a market capitalization of $4.08 billion and a price-to-earnings (P/E) ratio of 12.45, StoneCo's valuation metrics underscore the potential that JPMorgan sees in the company. The adjusted P/E ratio for the last twelve months as of Q1 2024 remains stable at 12.44, reinforcing the firm's perspective on StoneCo's reasonable valuation.
StoneCo has also demonstrated solid revenue growth, with an 18.07% increase over the last twelve months as of Q1 2024, and a 15.45% quarterly revenue growth in Q1 2024. These figures align with JPMorgan's expectations of a strong earnings compound annual growth rate. Moreover, an InvestingPro Tip highlights that management's aggressive share buyback strategy could be a sign of confidence in the company's future prospects.
For investors interested in further analysis and additional InvestingPro Tips, such as the stock's oversold status according to the Relative Strength Index (RSI) and the prediction of profitability this year, more information is available on InvestingPro. There are 10 additional tips listed on InvestingPro, offering deeper insights into StoneCo's market position. Readers can use the coupon code PRONEWS24 to receive an additional 10% off a yearly or biyearly Pro and Pro+ subscription, providing access to exclusive investment tools and data.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.