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Marqeta Inc. shares have taken a beating recently, shedding nearly two-thirds of their value over the past 12 months.
Now, Wolfe Research analyst Darrin Peller sees a risk-reward balance that’s “too compelling” to overlook.
He upgraded shares of the card-issuing company
MQ,
to outperform from peer perform Monday, writing that the market seems to be “underappreciating” Marqeta’s business, with the stock trading at about 1 times enterprise value to estimated fiscal 2024 gross profit.
“While some investors may be sidelined pending [near-term] uncertainties, at this price, we see these events as catalysts for clarity & upside during ’23,” Peller wrote.
Block Inc. represents more than half of the gross profit for Marqeta, which powers Block’s Cash Card, and the looming contract renewal between the two represents a major overhang this year for Marqeta’s stock, he said. But “[r]enegotiations with [Block] should act as a catalyst” for Marqeta shares, he reasoned.
“While contract terms are unclear, we’re confident that a deal will be struck by the end of ’23,” he wrote, in part because the businesses “are mutually beneficial.”
Elsewhere, Peller seems numerous positives. For one, he said, Marqeta nearly broke even on the basis of free cash flow last year, and the company has “[m]ultiple avenues such as credit and embedded finance drive longer-term growth along with a higher margin profile.”
Additionally, Marqeta’s business outside of Block has been strong, he noted, as the company touches on areas like expense management and the gig economy.
Marqeta shares were 10% higher as of Monday’s midday action.
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