Canaccord Acknowledges Missing Square's Run, Upgrades To Buy

Canaccord's neutral stance on Square Inc (NYSE: SQ), which dates back to the firm's initiation of coverage in early 2016, came to an end Friday. 

The Analyst

Analyst Michael Graham upgraded Square from Hold to Buy with a price target lifted from $60 to $90.

The Thesis

Canaccord was on the "wrong side" of the Square trade for several years, and the recent dip in the stock is an opportunity to own a "truly disruptive and well-run company," Graham said in the upgrade note. (See his track record here.) 

The upgrade comes one day after Square' stock was trading lower by more than 10 percent following CFO Sarah Friar's announcement that she will take the CEO role at Nextdoor. Her departure shouldn't be construed as a sign of trouble at Square, as Nextdoor is a "promising company," Graham said. 

Over the long term, Square's platform includes only 17 million microsellers and around 3.6 million small- and medium-sized businesses and midmarket sellers in the U.S., the analyst said. The relatively small figure implies plenty of opportunity for expansion in the core business, he said. 

Square continues to expand its product offerings by analyzing the large amount of seller data it collects, Graham said.  

"Recent successes like Instant Deposits should pave the way for an increasingly wide range of products and services spanning functions like employee management and marketing," he said. "We expect the list of products driving meaningful revenue to expand significantly." 

Square has a "solid chance" of gaining traction in the consumer market, even though the Cash App is not a meaningful revenue driver today, according to Cannacord. 

Price Action

Square shares were up 5.95 percent at $73.14 at the time of publication Friday. 

Related Links:

Nomura's Case For Adding Square To The FANG Trade

Square CFO Sarah Friar Departs: Analysts Debate What To Do Next With The Stock

Photo courtesy of Square.