The extraordinary dividends announced by Stone on Tuesday, April 14th, stemming from the sale of Linx , may have given some encouragement to the company's investment thesis, at a time when its valuation is quite low.
But analysts at BTG Pactual warn: without significant operational improvement, the shares will remain at current levels. And they say that time is running out for Stone to show that it can deliver a feasible turnaround .
"Right now, one of the main questions is whether Stone will be able to get out of this situation on its own, just through execution, or whether the story might eventually require some form of strategic alternative or mergers and acquisitions to unlock value," says an excerpt from the report signed by analysts Eduardo Rosman, Ricardo Buchpiguel, and Antonio Pascale, who recommend buying the shares, with a target price of US$19 – the stock is currently trading near US$15.
Looking at the valuation, BTG Pactual analysts highlight that Stone's shares are trading at a P/E ratio of 6 times. This multiple is lower than the 6.1 times recorded by Banco do Brasil , which faces serious problems related to default in the agricultural sector, while the payment processor shows good cash flow and higher profitability.
But the meager operational prospects represent a significant burden, as became clear the day after the dividend announcement. Despite being welcome, the payout did not cause the shares to jump as one would expect from such news. Year-to-date, the shares are up 1.26%, bringing the market capitalization to US$3.6 billion.
"The problem is that the operational pace remains weak, and the market seems increasingly reluctant to pay for a recovery that has not yet clearly materialized," says an excerpt from the report.
Expectations are not positive for Stone, following the signals given by the company in March about what to expect from the first quarter results. This situation caused the shares to fall by more than 19% on March 3rd.
Analysts at BTG Pactual project that the total payment volume (TPV) for the micro, small, and medium-sized enterprise segment should remain stable compared to the first quarter of 2025. This estimate is in line with what the company predicted in its last conference call – if Pix is included, it will be slightly above the figure recorded in the previous year.
Another negative point is the quality of assets, resulting in an increase in provisions, driven by the growth of non-performing loans (NPLs) in some higher-value names and the weaker performance of recent harvests. "The cost of risk could reach something above the 17% recorded in the fourth quarter," says an excerpt from the report.
Revenues are expected to increase by almost 5% year-over-year, but fall by 5% compared to the previous quarter. Despite expectations that operating profit will decline by a low single digit year-over-year, analysts say the lower tax rate should allow adjusted net income from continuing operations to increase slightly year-over-year, to around R$540 million.
Analysts acknowledge that Stone has correctly diagnosed the situation, acting on several fronts, such as execution, cost control, and engagement with the commercial side, in addition to experience in these areas. However, they question whether this will be enough, stating that there is no single factor that explains Stone's poor performance.
“If the problems were clearly linked to a single variable, such as price, the path to recovery might be more obvious, but also much more costly from the point of view of the unit economy. Instead, the current diagnosis suggests the need to 'tighten many screws' across the entire value proposition,” says an excerpt from the report.
At around 12:26 PM, Stone's shares were up 0.94%, at US$15.06.
