SQ, MELI, or V: Which Fintech Stock Could Pay the Best Returns?

Macro uncertainties and growing fears of an economic downturn are likely to impact consumer spending and hence the performance of financial technology or fintech companies. Still, Wall Street remains bullish on the long-term prospects of several fintech stocks due to the increasing transition to digital payments. We used TipRanks’ stock comparison tool to compare Block (NYSE:SQ), MercadoLibre (NASDAQ:MELI) and visa (NYSE:V) compete to select the fintech stock with the highest upside potential, according to Wall Street analysts.

Block (NYSE:SQ)

Block ended 2022 with better-than-expected sales and gross profit. However, the fintech’s adjusted earnings per share (EPS) fell short of estimates due to higher spending. The company reassured investors that it will focus on efficiency this year and will “sensibly” slow the pace of spending growth compared to previous years.

Block expects to post adjusted EBITDA of about $1.3 billion in 2023, which represents growth of over 30%. The company’s two ecosystems, Square for merchants and Cash App for individuals, are growing rapidly. Block is seeing stronger engagement of its Square solutions with larger sellers and those using more products. Last year, mid-market sellers who launched four or more products had 15 times higher customer retention than those who launched just one product.

Meanwhile, Cash App had 51 million active users with monthly transactions as of December 2022, up 16% year-on-year. In addition, an average of two out of three active members transacted each week.

Is blocking now a purchase?

UBS analyst Rayna Kumar reiterated a buy rating on Block with a price target of $102 after meeting with the company’s management.

“Block’s aggressive pace of innovation should continue to drive premium growth. We expect Block to generate at least sub-20-year CAGR gross profit over the next three years,” said Kumar.

Overall, Wall Street’s consensus strong buy rating for block stocks is based on 19 buys and five holds. The average price target of $99.24 implies upside potential of almost 35% from current levels. Shares are up over 17% so far in 2023.

MercadoLibre (NASDAQ:MELI)

E-commerce and fintech company MercadoLibre is often referred to as the “Amazon of Latin America”. Last month, the company released positive first-quarter results, driven by solid momentum in its fintech business. The number of unique active fintech users grew 27% to 44 million in the fourth quarter of 2022, while total payment volume (TPV) through Mercado Pago, the company’s payments platform, grew 45% in US dollars.

Over the past three years, the company has more than quadrupled its TPV and its fintech revenue has nearly quintupled. Overall, MercadoLibre’s fintech business has grown to be a major contributor to its revenue and earnings. The company continues to expand the scope of its financial services and grow its revenues.

What is the price target for the MELI share?

Following the results, BTIG analyst Marvin Fong raised his price target for MercadoLibre from $1,245 to $1,400 and again confirmed a buy rating. Fong believes the company’s Adjusted EBITDA should triple in 2023 compared to 2021.

The analyst’s new price target is based on 27x its 2024 EBITDA estimate. Fong claimed that while that’s a “relatively high multiple in this rather sober market,” he believes the company’s revenue growth rate has increased from 25 % to 30% and its leading position in Latin America’s fast-growing digital market warranted a premium rating.

Other Wall Street analysts are also bullish on MercadoLibre, with the stock receiving a Strong Buy consensus rating based on nine unanimous buys. At $1,526.67, MELI stock’s average price point suggests a 25.7% upside potential. Shares are up nearly 44% year-to-date.

Visa (NYSE:V)

Payments processing giant Visa started fiscal 2023 with an outstanding performance in the first quarter (ended December 31, 2022). Revenue rose 12% to $7.9 billion and adjusted earnings per share rose 21% $2.18. Steady payment volume and growth in transactions processed, along with the continued recovery in cross-border travel, drove performance in the first quarter of FY23.

Visa continues to expand its footprint around the world and partner with other fintechs to improve its prospects. For example, Mexican fintech Konfio, which has already issued around 50,000 small Visa business cards, recently expanded its agreement with the company to issue Visa Business Infinite cards.

Visa also struck an agreement with Latin American fintech platform Tigo Money and its parent company Millicom to offer Tigo Money’s 5 million+ wallet users the ability to digitize their cash and shop anywhere with the Visa-Tigo Money Access Card , where Visa is accepted.

Is Visa stock a buy, sell or hold?

Visa recently provided quarterly estimates for the second fiscal quarter (ending February 2023). Quarter-to-date U.S. payment volume is up 12%, cross-border volume is up 27%, and transactions processed are up 13% year over year.

Following the update, Baird analyst David Koning noted that Visa’s operating metrics through February were ahead of estimates and suggested the company could beat its Q2FY23 revenue estimates by over 1.5%.

Koning reiterated a Buy rating on Visa with a price target of $272, saying, “We really like Visa given its robust macro model, inflation support, X-Border improvement (particularly in APAC), quality earnings and potential valuation re-rating .”

Wall Street’s Consensus Strong Buy rating for Visa is based on 20 buy, one hold and one sell. Visa’s stock average price target of $261.29 suggests upside potential of 19.5%. Shares are up over 5% so far this year.

Diploma

Despite near-term headwinds, Wall Street is bullish on all three fintech stocks discussed here. However, they see higher upside potential in Block compared to MercadoLibre and Visa. Block looks set to add more deals to the fintech space, driven by the strength of its Square and Cash App ecosystems.

Wall Street analysts aside, hedge funds have a very positive confidence signal for Block. According to TipRanks’ hedge fund trading activity tool, hedge funds increased their holdings by 5.7 million SQ shares in the most recent quarter.

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