Citi has upgraded Shopify from Neutral to Buy, setting a price target of $105.
Analyst Comments:
Margin and Profitability Improvements: Shopify ($SHOP) has successfully addressed margin and profitability concerns through divestiture and cost-cutting measures in 2023. Despite a recent 20% pullback from its February highs, Citi upgrades its rating from Neutral to Buy, setting a price target (PT) of $105, albeit with a high-risk label.
Positive Momentum into FQ1 Results: The company is positioned favorably for its upcoming FQ1 results, instilling confidence in its performance trajectory.
Steady Growth in Merchant Solutions: Citi expresses confidence in the sustained growth of Merchant Solutions. The valuation, adjusted for growth, appears more reasonable, with projected EPS/FCF compounding at 34/44% over the next five years.
Projected Revenue Expansion: Citi forecasts a clear path to $17.8 billion in Merchant Solutions revenue by 2028, coupled with an anticipated increase in take rate to 2.9% by FY28.
Factors Driving Merchant Solutions Growth: Growth in Merchant Solutions is expected to be propelled by the ongoing global adoption of the Shopify platform, an expanding merchant ecosystem, and increased utilization of Shopify Payments and newer solutions.
Favorable Risk/Reward Balance: Citi assesses the risk/reward balance as favorable for investors, considering the recent share price decline, conservative guidance, and downwardly revised expectations. The valuation, at 0.71 times Citi’s estimated CY26 EV/FCF/G, compared to large-cap peers at 1.48 times, is deemed attractive, prompting Citi to revise its estimates for 1Q-FY24-FY28 upwards.
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