Shopify Shares Upgraded By Pacific Crest Following Massive Correction

Pacific Crest’s Brendan Barnicle upgraded the rating on Shopify Inc (NYSE: SHOP) to Overweight, with a price target of $35.

Increased Confidence in Shopify

“After hosting Shopify's management on an NDR two weeks ago and hearing about the strong momentum in SMB SaaS at our Emerging Technology Summit last week, we have increased confidence that SHOP's strong momentum will continue,” Barnicle mentioned.

The analyst also said that concerns regarding the margins in the company’s payments business were abating and that there could be further upside potential to the stock’s premium valuation.

Declining Concerns

Barnicle pointed out that there had been three primary concerns during 2015: valuation, margins and competition. However, these concerns had abated sufficiently for the analyst to recommend the stock at the current levels.

According to the Pacific Crest report, “SHOP has had a massive correction in its valuation. While it still trades at a premium to peers, the premium appears warranted, in our view, based on its superior growth rates.”

Although gross margins in the payments business were still lower than that in the subscription business, both segments had similar operating margins.

In addition, while competition persists for the company, the analyst believes that it has stagnated. “Shopify is continuing to robustly add new customers to its platform,” Barnicle added.

The EPS estimate for 2017 has been raised from ($0.27) to ($0.22).