PagBank downgraded to Underweight from Equal Weight at Morgan Stanley

Morgan Stanley downgraded PagBank to Underweight from Equal Weight with a price target of $6.50, down from $14. The analyst anticipates a significant slowdown in payment volume growth for PagSeguro and Stone due to the already high penetration of digital payments in Brazil. The firm expects the companies’ net income to decrease over the next six years, in sharp contrast to the current sell-side consensus expecting double-digit growth. The stocks’ valuations look unattractive once adjusted for growth, the analyst tells investors in a research note. Morgan Stanley believes Brazil digital payments have reached saturation while merchant acquiring growth and profitability “may face serious pressure.” It foresees 40%-50% stock downside and thinks the consensus underestimates implications across the payments ecosystem.