On Tuesday, Evercore ISI raised its rating on shares of PagSeguro (NYSE:PAGS), moving from In Line to Outperform. The firm also increased the price target to $18.00, a significant rise from the previous $12.00 target. This adjustment reflects a positive outlook for the company's financial performance over the next few years.
"We see several cyclical and secular tailwinds creating an inflection in revenue and earnings growth," said the analyst.
These include accelerated Total Payment Volume (TPV) growth driven by small and medium-sized businesses (SMBs), a stabilization of take rates, and an increase in gross profit yields. Additionally, the firm anticipates a rise in client deposits and a decline in interest rates contributing to the company's growth.
The analyst's forecast indicates that PagSeguro will experience a significant acceleration in TPV growth in the coming years, with a projection of 17% in 2024 and 13% in 2025, up from 12% in 2023. This growth is expected to be supported by the company's strategic focus on high-value SMB merchants and the cross-selling of value-added services and banking solutions.
Evercore ISI also predicts that net take rates for PagSeguro will begin to stabilize starting in 2025 as the attrition of low-value nano-merchants slows down. This stabilization is likely to contribute to the company's financial health.
Furthermore, the firm anticipates that PagSeguro will benefit from reduced margin pressure due to declining financial expenses, which are expected to result from lower interest rates in Brazil and increased client deposits that provide a more affordable funding source for the company's prepayment business.
Finally, Evercore ISI expects that as capital expenditures as a percentage of revenue stabilize, the impact of depreciation and amortization, including point-of-sale (POS) write-offs, will lessen in 2025 and 2026, leading to improved margins. The firm's estimates for PagSeguro's earnings per share (EPS) for 2024 to 2026 are 4%, 6%, and 13% higher than the current consensus estimates, respectively.
InvestingPro Insights
Following the upbeat assessment by Evercore ISI, PagSeguro (NYSE:PAGS) has also garnered attention on InvestingPro, where the company's financial metrics and market behavior offer additional insights. According to InvestingPro data, PagSeguro's Market Cap stands at a robust $4.4 billion, with a Price to Earnings (P/E) ratio of 13.55, which adjusts to a more attractive 9.12 when looking at the last twelve months as of Q4 2023. This suggests a company that is currently valued favorably in the market relative to its earnings.
InvestingPro Tips highlight that management's aggressive share buyback strategy could be a sign of confidence in the company's value, which aligns with Evercore ISI's positive stance. Additionally, the company has been experiencing a large price uptick over the last six months, with a 67.51% total return, indicating strong recent performance that could interest investors looking for growth.
Moreover, with analysts revising their earnings upwards for the upcoming period, and a prediction of profitability this year, the future looks promising for PagSeguro. For readers interested in a deeper dive into PagSeguro’s financials and market performance, InvestingPro offers an array of additional tips—there are 9 more InvestingPro Tips available for PagSeguro. These insights could be particularly valuable for investors looking to make informed decisions.
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