In a report released yesterday, Tito Labarta from Goldman Sachs maintained a Hold rating on Pagseguro Digital (PAGS – Research Report), with a price target of $15.00.
Tito Labarta has given his Hold rating due to a combination of factors including Pagseguro Digital’s recent performance and future guidance. The company’s recurring net income showed a notable increase, surpassing both Goldman Sachs’ estimates and the broader consensus. Despite this, there were higher marketing and personnel expenses which slightly offset the revenue gains. Additionally, the total payment volume (TPV) saw a significant quarterly increase, led by small and medium-sized businesses (SMBs), which outpaced the industry’s growth rate. However, the shift towards SMBs and other factors are expected to lead to lower net take rates, even though gross margins are anticipated to improve.
Furthermore, Labarta’s analysis considers the competitive position and valuation of Pagseguro Digital, noting that it trades at a discount compared to its peer Stone, with a lower expected earnings per share (EPS) growth rate. The revised price target to $15.0, up from $13.8, is based on a detailed discounted cash flow (DCF) analysis, but still reflects a conservative earnings multiple compared to the industry. While there are upside and downside risks, including the potential for better than expected take rates and stronger volume growth in the SME segment, the overall outlook is balanced, justifying the neutral stance on the stock.
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Pagseguro Digital (PAGS) Company Description:
PagSeguro Digital Ltd. engages in the provision of financial technology solutions focused on Micro-Merchants, Small Companies and Medium-Sized Companies, or Small Medium Enterprises. Its business model covers the following pillars: Multiple digital payment solutions; In-person payments via POS devices that sell to merchants; Free digital accounts; Issuer of prepaid cards to clients for spending or withdrawing account balances, and Operating as an acquirer. The company was founded on 2006 and is headquartered in Sau Paulo, Brazil.
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