Why This PagSeguro Analyst Is Turning Bearish

PagSeguro Digital Ltd’s PAGS stock has underperformed this year and could be close to the bottom. Yet there are still downside risks to the consensus estimates, according to Goldman Sachs.

The PagSeguro Analyst: Tito Labarta downgraded PagSeguro from Neutral to Sell while slashing the price target from $15 to $9.

The PagSeguro Thesis: While PagBank has yet to break even, PagSeguro’s third-quarter print showed that financial expenses continue to be a headwind and margins remain under pressure as the company shifts to the lower margin SME (small and medium enterprises) segment, Labarta said in the downgrade note.

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“Net margins have steadily declined at PagSeguro, as the company continues to absorb the impact of higher interest rates,” the analyst wrote. “Furthermore, its shift to the SME segment has also led to relatively lower margins compared to higher margin micro-merchants, and PagBank has yet to become profitable,” he added.

PagSeguro’s earnings growth could “remain muted at only 7% in 2023,” while rival StoneCo Ltd’s STNE “more than doubles,” growing 101%, Labarta further mentioned.

PAGS Price Action: Shares of PagSeguro were trading down 4.94% to $10.01 Thursday morning. 

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