On Friday, UBS analyst maintained a Buy rating on StoneCo Ltd . (NASDAQ:STNE), with a steady price target of $12.50. The stock, currently trading at $8.26, appears undervalued according to InvestingPro Fair Value metrics, with a P/E ratio of just 7.5x and strong gross margins of 73%. Following a recent meeting with StoneCo's Head of Credit, Mr. Gregor Ilg, and the Investor Relations team, UBS discussed the company's credit strategy and positioning amidst current economic challenges.
The analyst noted StoneCo's credit business appears well-positioned with a strong team and clear operational processes. With revenue growing at 13.9% year-over-year and maintaining profitability with earnings per share of $1.18, the company shows operational strength. One of the features that may differentiate StoneCo in the market is its daily amortization model, which could potentially lead to lower default rates.
Despite the positive outlook, UBS remains more conservative in its expectations compared to the company's own projections. UBS predicts StoneCo's credit book will reach R$3.1 billion by 2027, which is less than the company's guidance of over R$5.5 billion.
The conservative stance by UBS is influenced by the macroeconomic environment, which has proven to be more challenging than initially forecasted. Additionally, the credit book is relatively new, which adds to the cautious perspective.
The report also highlighted the recent surge in the yield curve, with a 210 basis points increase over the past 30 days, suggesting that StoneCo may face higher funding costs than previously expected. This change in the financial landscape is likely to exert additional pressure on the company's funding strategies moving forward.
UBS's reaffirmed Buy rating and price target reflect a belief in StoneCo's strategic approach to its credit business, even as they account for broader economic headwinds and the potential impact on the company's cost of capital. For deeper insights into StoneCo's valuation and financial health, access the comprehensive Pro Research Report available on InvestingPro, which offers expert analysis of 1,400+ top stocks.
In other recent news, StoneCo, a Brazilian financial technology firm, experienced a dip in shares following low bids for its software unit, Linx, and a broader downturn in Brazil's stock market. The company has received multiple nonbinding offers for Linx, many of which are significantly below the purchase price from 2020. Among the potential bidders are Totvs SA and Constellation Software (ETR:SOWGn). Despite the low bids, StoneCo remains in a strong financial position, recently authorizing a share repurchase program valued at up to 2 billion reais.
In contrast, StoneX Group Inc. reported strong fourth-quarter earnings, exceeding analyst estimates. The financial services firm posted an adjusted earnings per share of $2.32, and revenue surged 87% year-over-year to $31.14 billion. The firm attributes these results to increased client engagement and higher volumes across most of its operating segments. For the full fiscal year of 2024, the company reported a record net income of $260.8 million, a 9% increase from the previous year.
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