UBS Maintains Buy Rating on PagSeguro with Adjusted Target

UBS Stands Firm on PagSeguro Digital Ltd. Stock

Recently, UBS expressed a strong viewpoint regarding PagSeguro Digital Ltd. (NYSE:PAGS) stock. They have adjusted their price target from $15.50 down to $14.00 but affirmed their Buy rating for the stock. This shift in price target appears to resonate with the company’s second quarter financial results, which introduced some unpredictable elements regarding PagSeguro's future performance. Notably, there has been a considerable decline in the stock price—about 40%—since the results were made public. However, UBS has valid reasons for maintaining an optimistic outlook.

Financial Performance and Market Challenges

UBS's analysis reveals that PagSeguro's total payment volume (TPV) is experiencing an upward momentum. However, this positive trend is impacted by a significant decline in take rates, paired with a slower gross profit growth rate. The low operating leverage presents challenges and raises concerns about the company's performance moving forward. A specific area of concern is the LMEC segment, which is expected to grow quickly but also raises questions about its effect on overall profitability.

Reasons for Continued Support

Despite emerging challenges, UBS believes there are compelling arguments to support PagSeguro’s stock. The upward trajectory of the company’s gross profit showcases resilience in earnings, even as LMECs present difficulties in profitability. Moreover, PagSeguro proves its ability to implement effective cost management strategies during periods of economic hardship.

Temporary Rate Fluctuations

UBS has expressed hope that the current rise in policy rates is a short-term phenomenon, with expectations that funding costs may improve in the future. Such improvements could alleviate some pressures on yield margins associated with deposits.

Undervalued Stock Valuation

From a valuation perspective, UBS conveys that PagSeguro is currently selling at an attractive price. The firm points out that the stock trades at approximately seven times its anticipated GAAP earnings for 2025, which sits nearly 20% below its historical average over the last two years. Additionally, the price-to-book value (PBV) for 2025 sits at an estimated 0.9 times, positioning PagSeguro among the most affordable options when compared to global payment industry peers.

Endorsement Despite Price Target Adjustment

These favorable valuation metrics have contributed to UBS's sustained endorsement of PagSeguro as a Buy recommendation, even amid the adjustment of the price target. Investors considering PagSeguro may find the insights from UBS a balance of caution and confidence, as the company navigates through economic challenges while still presenting sound growth opportunities.

Frequently Asked Questions

What is the current price target for PagSeguro Digital Ltd.?

UBS has adjusted its price target for PagSeguro Digital Ltd. to $14.00 from $15.50.

Why did UBS maintain a Buy rating on PagSeguro?

UBS maintains a Buy rating due to favorable valuation metrics and resilience in gross profit despite market challenges.

What challenges does PagSeguro face according to UBS?

Challenges include declining take rates, slower gross profit growth, and the impact of the rapidly expanding LMEC segment on profitability.

How does PagSeguro’s valuation compare to its competitors?

PagSeguro is considered one of the cheapest among global payment peers, trading at about 0.9 times its projected price-to-book value for 2025.

What are the prospects for PagSeguro's profitability?

Despite challenges, UBS believes PagSeguro can effectively manage costs and recover from temporary increases in policy rates, enhancing future profitability.

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