Buffett-Backed StoneCo Soars on Strong Results

(Bloomberg) -- StoneCo Ltd rose as much as 27 percent to a record high after the financial technology company’s upbeat tone added to Wall Street’s excitement about strong fourth-quarter results.

The Brazilian firm, which is backed by Warren Buffett, more than doubled its active clients during the quarter and said it is accelerating the rollout of new products and services. “More importantly, the company shared an encouraging qualitative message in the conference call, conveying that its plans have not been hindered by competition,” Credit Suisse analyst Lucas Lopes said in a note to clients.

With the stock up 73 percent since its initial public offering in October, some investors may start to wonder if most of the tailwinds are already priced in. “Meeting high hopes won’t be easy,” BTG Pactual analysts Eduardo Rosman and Thiago Kapulskis wrote. “The way we see it, investors are clearly giving Stone the benefit of the doubt.”

StoneCo’s competitor PagSeguro Digital Ltd gained as much 9.2 percent in New York.

Here’s what Wall Street analysts have to say:

Citigroup, Felipe Gaspar Salomao

• Reported consolidated revenues were 6 percent higher than Citi’s expectations
• Management team delivered a “very optimistic message” during the earnings call
  • Company was especially bullish about the revenue opportunities from new products

BTG Pactual, Eduardo Rosman

• Bullish tone on the call was more important than the results
• Management is accelerating the rollout of new products and services, and said 2019 has started out well
• After a massive rally, much is already priced into the shares
  • “Investors are clearly giving Stone the benefit of the doubt that it will be able to generate not just stronger and longer-term relationships with its clients but also extract more value from them”

Itau BBA, Thiago Bovolenta Batista

• Price target was raised to $31.80 from $22.30
• Management expressed confidence in the company’s prospects and said the positive fourth-quarter operational trends will persist in the coming quarters

BofAML, Mario Pierry

• StoneCo delivered strong revenue growth and net margin expansion in the quarter
• Price target raised to $42 from $26; buy rating reiterated

Credit Suisse, Lucas Lopes

• Results came better than anticipated, helped by lower-than-expected operating expenses
• Company shared an “encouraging qualitative message” on the call, signaling that its plans haven’t been hindered by competition throughout the first quarter
• Underperform rating maintained due to “overly demanding” valuation

What Bloomberg Intelligence Says

“StoneCo is standing strong on its service model against price competition from larger players. But with all offering discounts on their point-of-sale hardware, some clients will take multiple vendors’ systems, diluting the TPV earned per client and raising the stakes on new revenue streams.”

-- Julie Chariell and Carlo Villasenor, consumer products analysts
-- Click here to read the research

To contact the reporter on this story: Vinícius Andrade in São Paulo at vandrade3@bloomberg.net

To contact the editors responsible for this story: Courtney Dentch at cdentch1@bloomberg.net, Catherine Larkin, Steven Fromm

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