PagSeguro Soars as Earnings Beat Quiets Concerns on Competition

(Bloomberg) -- A tougher competitive environment in Brazil has so far had limited effect on PagSeguro Digital Ltd’s growth.

The shares rose as much as 12 percent Friday in New York, the most since Aug. 31, after the company’s fourth quarter adjusted earnings per share beat even the most optimistic estimates. Analysts from Deutsche Bank to Itau BBA saw payments volume as strong and said PagSeguro should be able to exceed its 2019 forecast.

“Guidance could be likely beaten, notwithstanding the tougher competitive outlook,” Bradesco analysts led by Rafael Frade wrote in a report. Itau BBA analysts led by Thiago Bovolenta Batista expect 2019 adjusted net income of 1.6 billion reais -- above the top end of the company’s forecast at 1.5 billion reais.

Deutsche Bank maintained its buy rating and increased its earnings per share estimate for 2019 and 2020. “We believe PagSeguro continues to execute well despite competitive fears and we expect the strong momentum to continue in 2019,” analyst Bryan Keane wrote in note.

According to BTG Pactual, the recent sell-off -- when the shares tumbled 32 percent in the last quarter of 2018 -- opened a good entry point. The bank had added PagSeguro to its stock ideas’ list in Brazil in February.

“Yes, competition is tougher, but PagSeguro still operates in the only blue ocean niche within payments, it has scale, brand, capital and vast sector knowledge, and with a still decent valuation to boot,” analysts Eduardo Rosman and Thiago Kapulskis wrote in a report.

What Bloomberg Intelligence Says

“PagSeguro’s guidance for 2019 shows it anticipates a marked slowdown from 2018 levels, with a forecast that’s slightly below consensus estimates at the high end, albeit in-line with the longer-term plan laid out in late 2017.”
-- Julie Chariell, senior consumer products analyst
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