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Goldman Sachs upgraded StoneCo (NASDAQ:STNE) to Buy, PagSeguro (NYSE:PAGS) to Neutral and stayed Neutral on Cielo (OTCPK:CIOXY), driving shares higher.
The payments stocks beat the Ibovespa index since early October and the outlook seems to be “slightly more favorable,” analysts led by Tito Labarta wrote in a note. Goldman cited banking initiatives, declining rates and stabilizing growth trends.
On the downside, “competition remains a risk with potential pressure from non-listed competitors, particularly in a context of declining rates,” the analysts said. In addition, credit card penetration has less room to expand after reaching more than 50% of personal consumption.
Goldman’s optimism comes as Brazil’s economy is set to decline to 1.6% in 2024 from 3% estimate growth for 2023, according to a Reuters survey published on Monday. The country's fiscal situation is the weak link in its macroeconomic fundamentals, Rabobank analysts wrote in a report, warning of a possible rise in market risks if the government eventually admits a “grimmer budget reality.”
StoneCo
The Berkshire Hathaway-backed payments firm got an upgrade from Goldman Sachs to Buy from Neutral and its preferred name in Brazil payments with a superior revenue and earnings growth outlook.
Total Payment Volume, or TPV, should have grown 11% last year, comparable to the industry as a whole in 2023. Stone’s positioning in the micro, small and medium-sized business, or MSMB, segment could warrant stronger growth in 2024 of 15% compared to 10% for the industry.
“Separately, we model increased revenue diversification, with Software accounting for 15% of total revenues by 2027 from 13% in 2023,” the team said. “Most importantly, we forecast credit revenues at 11% of MSMB revenues (9% of total revenues) by 2027, while floating revenues contribute for 4% within MSMB (and 3% of total) by 2027.”
Goldman’s 2027 net income forecast of R$3.6B ($727M) is below guidance of R$4.3B and higher, though for 2024, net income forecast is in-line with company guidance and 3% above Bloomberg consensus.
Shares are up 7.6% on Monday.
PagSeguro
Goldman bumped PagSeguro to Neutral from Sell with revenue reaching an inflection point.
While TPV growth for PagSeguro, also known as PagBank, rebounded to 11% year-over-year in the third quarter from 4%, it’s like to remain in the low double digits throughout 2024.
“Accordingly, revenue growth can improve sequentially after several quarters of deceleration, while net margin seems to have stabilized with possible upside as interest rates come down, leading to lower financial expenses,” the bank said. “However, we still see PagBank as relatively more restrictive on unsecured credit, which can be prudent, but also limit upside.”
The stock is up 5%.
Cielo
Goldman stayed Neutral on Cielo with the company losing TPV market share after ceding its leadership position to Redecard in 2023.
“The company could experience some EBITDA margin contraction on the back of increased operating expenses,” the analysts said. “We expect net margins of 17-18% going forward, still significantly below historical levels.”
Cielo rose 5.4%.