Stone: Poor Earnings Momentum Is Nearing an End, Says Credit Suisse

In a report, Credit Suisse analysts say that despite weak profitability in the final quarter of 2021, Stone has given guidance of a “much improved” first quarter

Positive Q1 Guidance Encouraged Investors (Patrick T. Fallon/Bloomberg)
March 18, 2022 | 09:52 AM

Bloomberg Línea — After Brazil’s fintech (STNE) released its fourth-quarter results on Thursday, analysts at Credit Suisse felt that the company provided much better guidance for the first quarter of this year and that “negative earnings momentum is close to an end”.

In Q4 2021, Stone had a net profit of R$34 million, short of the R$65.2 million expected by analysts, with a net margin of 2%, pressured by higher funding costs. Even so, the company saw a 55% growth in TPV (payments processed), and said total revenue grew 87% year on year.

The report, signed by Daniel Federle and Victor Ricciuti, considers that despite the weak profit last quarter - the fourth consecutive quarter of results below expectations -, Stone provided adjusted profit guidance (before taxes) higher than R$ 140 million for the first quarter, indicating that net margins should continue to rise throughout the year.

As such, analysts feel the company’s valuation is not an issue, as Stone suggested the first quarter should be the weakest of the year. “Assuming first-quarter guidance as a floor, our estimate of net income of R$514 million in 2022 seems achievable,” Federle and Ricciuti write. Stone’s shares have accumulated a 90% decline since peaking in February 2021. The fintech has lost $26 billion in market value in the year.


“If investors regain confidence in earnings momentum, that could be favorable for the stock. Stone is confident in its guidance and said the first quarter is still far from the level at which margins should stabilize. Finally, the credit product has been enhanced and should pick up by Q2/3rd.”

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