Square device sticker in a retail store

Square Drops 10% Overnight

Square Inc. (SQ) reports Q4 2020 earnings after Tuesday’s closing bell, with analysts expecting a profit of $0.24 per-share on $3.1 billion in revenue. If met, earnings-per-share (EPS) will mark flat growth compared to the same quarter last year. The stock rallied nearly 23% after blowing away Q3 2020 estimates in November and has added another 39% in the last three months, carving a series of new highs.

Square Payment Solutions

The company provides digital payment and point-of-sale solutions used by Europay, MasterCard Inc. (MA), and Visa Inc. (V). The stock has benefited from the pandemic, with surging revenue as a result of contactless and tap-based technologies. It also offers a suite of small business software for point of sale, terminals, appointments, restaurants, invoicing, as well as loyalty and rewards programs. Last but not least, it’s benefited from a timely $50 million Bitcoin investment made in October 2020.

Deutsche Bank analyst Bryan Keane raised his target to $330 last week, noting, “Depending on the pace of the recovery and timing of incremental stimulus, we see potential in our upside model for gross profit growth to reach as high as 85% year-over-year in fiscal year 2021, which would represent 40% above consensus and our model (we are conservatively modeling the recovery in our core model). In 2021, we expect SQ to continue delivering strong operating leverage, offset by incremental investments for future growth.”

Wall Street and Technical Outlook

Wall Street consensus translates into an ‘Overweight’ rating based upon 24 ‘Buy’, 2 ‘Overweight’, 16 ‘Hold’, and 1 ‘Underweight’ recommendation. Three analysts now recommend that shareholders close positions and move to the sidelines. Price targets currently range from a low of $140 to a Street-high $380 while the stock has opened Tuesday’s U.S. session less than $5 above the median $247 target.

Square fell to a two-year low during 2020’s pandemic decline and turned higher, breaking out above 2018 resistance at 101.15 in June. It’s been on a tear since that time, gaining ground within a rising channel that reveals intense institutional sponsorship. The rally paused above 240 in December while a breakout earlier this month posted an all-time high at 283.19. Many shareholders are taking profits ahead of the report, dropping price 10% overnight.

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Disclosure: the author held no positions in aforementioned securities at the time of publication.