Bradesco BBI’s Strategic Bet: Favoring Stone over PagSeguro in Market Upgrades

Bradesco BBI recently upgraded both PagSeguro and Stone to “buy” status, highlighting significant growth potential.

The bank set target prices at $16 for PagSeguro and $18 for Stone, anticipating gains of 37% and 42% respectively.

These upgrades demonstrate the strong market shares and increasing payment volumes of the firms.

Since early 2022, both companies have expanded their market presence and profitability.

This development suggests a shift towards more stable pricing strategies within the payment processing industry.

Furthermore, enhancements in their banking services are likely to improve their financial results through increased revenue and reduced funding costs.

Discussing market specifics, Stone and PagSeguro currently undervalue their stocks, presenting attractive investment opportunities.

Stone’s valuation, with a P/E ratio of 9.3 for 2024, sits well below its historical average of 17.3.

In contrast, PagSeguro trades at 8.4 times earnings, below its usual 11.2. This valuation sharply contrasts with global counterparts, which average 25.8 times earnings.

Bradesco BBI shows a strong preference for Stone, noting its dynamic profit growth and competitive valuation.

Stone’s equity returns are on the rise, expected to reach mid-range percentages soon, while PagSeguro has stabilized at 14%.

This financial trajectory gives Stone an advantageous position, especially as it continues to lead in the profitable MSMB segment, significantly boosting its profit margins.

Bradesco BBI’s Strategic Bet: Favoring Stone over PagSeguro

For 2024, BBI predicts that Stone will exceed its financial forecasts, reaching an adjusted net profit of R$2.2 billion ($410 million), over 13% higher than expected.

Meanwhile, PagSeguro, with steady financial performance and improved operational efficiencies, is also set to surpass its annual targets.

It aims for a non-GAAP net profit of R$2.2 billion in 2024, about 4% above its highest estimates.

PagSeguro’s banking operations strengthen its standing, boasting a diverse loan portfolio and over R$30 billion in deposits, which enhance its cost efficiencies.

According to BBI, both companies are well-positioned to benefit from the growing digital payments sector.