KeyBanc Upgrades Q2 Holdings On Growing Total Addressable Market

The recent pullback in Q2 Holdings Inc QTWO shares offers a near-term investment opportunity in a niche company that continues to increase its total addressable market, according to KeyBanc Capital Markets.

The Analyst

Analyst Arvind Ramnani upgraded Q2 Holdings from Sector Weight to Overweight and set a $74 price target.   

The Thesis

Q2 Holdings’ TAM continues to expand, boosted by product enhancements, M&A and the targeting of a broader client base, Ramnani said in a Tuesday note.

A portfolio of larger clients underlines the robustness of the company’s solution, the analyst said. 

Q2 is likely to showcase its expanded solutions and their relevance to its client base at its first-ever analyst day, Ramnani said.

The recent acquisition of Cloud Lending has increased Q2 Holdings’ TAM by around $2.5 billion, the analyst said, adding that the acquisition will allow the company to offer deposit and lending solutions on a common platform, making it easier for banks to offer targeted loans to customers.

Banks will be less price-sensitive to lending solutions since they contribute to their topline, the analyst said. 

Q2 Holdings has exhibited operational discipline, which is expected to continue to drive margins, in KeyBanc's view. 

The company’s shares have lost 17.6 percent in the last four months versus an 8.2-percent decline in the S&P 500.

The recent weakness provides an “attractive entry point,” Ramnani said. 

Price Action

Q2 Holdings shares were up 1.24 percent at $54.91 at the time of publication Wednesday. 

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