Square Gets a Double Downgrade from Bank of America

Financial services, merchant services aggregator, and mobile payment company Square, saw its shares head lower on Monday after receiving a double downgrade from Bank of America.

According to BofA Securities, the gradual reopening of the U.S. economy may be an incremental positive for brick-and-mortar merchants, small- and mid-sized companies but they have yet to witness a trough in churn.

Analyst Jason Kupferberg downgraded Square from Buy to Underperform with an unchanged $84 price target.

Kupferberg wrote in a note on Monday that while stimulus funds may provide temporary relief, a significant number of small- and mid-sized businesses may struggle to remain afloat, especially if the economy reopens only partially.

The analyst noted that roughly 75% of Square’s payment volume comes from merchants with less than $500,000 in annual card volume. He pointed out that despite this backdrop, the stock has outperformed the S&P500 by around 4,000 basis points so far this year.

Kupferberg says that “although the consumer-facing Cash App business is performing well, the Seller segment represents around 70% of the company.”

Square’s gross payment volume “will likely vary significantly across a range of spending categories,” says the analyst.

Shares of Square have gained 28% YTD. Shares have soared by about 12 percent since reporting its first quarter 2020 results on May 6.

Disclaimer: We have no position in Square Inc. (NYSE: SQ) and have not been compensated for this article.