An overseas investment idea investors shouldn’t overlook is StoneCo., a Brazilian financial technology and software solutions company headquartered in the Cayman Islands that JPMorgan has grown bullish on. Analyst Yuri Fernandes upgraded the U.S.-traded shares of Stone to overweight from neutral, citing the stock’s appealing earnings potential at a compound annual growth rate (CAGR) of 20% between 2023 and 2027, as well as its discounted valuation. He maintained his $20 year-end price target, which implies roughly 50% upside from the stock’s latest close. Shares are down roughly 25% this year, with most of these losses occurring since Stone posted a miss on first-quarter revenue results on March 13, Fernandes said. The stock almost doubled in 2023, climbing 91%. “We have been on the sidelines on the payments sector for a while. It is not an easy sector due to competitive dynamics, but current multiples for growing banking franchises make us more positive,” Fernandes said in a note published Thursday. “We believe [a] Stone re-rating depends mostly on banking deliveries (i.e., deposits and healthy credit growth) rather than [the] macro environment.” In November 2023, Stone CEO Pedro Zinner told Reuters that the company plans to multiply net profits eightfold through the end of 2027 by speeding up the integration of its financial services and software operations, and using its cash to improve profitability. The company had projected an adjusted net profit of at least 1.9 billion Brazilian reais in 2024 and at least 4.3 billion reais in 2027, up from just 526 million reais in 2022, the report said. Stone’s differentiated business model, based on a close approach to clients via hyper-local distribution centers, has allowed it to quickly expand its market share, Fernandes said. He estimates Stone has about 20% market share in the core micro, small and medium-sized businesses (MSMB) market . Meanwhile, Stone’s “best-in-class service” and lower prices drive above-average customer satisfaction, and the company’s new lending venture could further boost revenues, the analyst wrote. “Although industry irrationality remains a risk, we see current valuation as attractive considering EPS growth potential and banking upside,” Fernandes said, noting that downside risks include strong local competition and the chance that the founders will sell more of their stock. STNE mountain 2022-12-31 StoneCo. shares in 2023 and 2024.
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