Morgan Stanley: Brazil's payment industry growth is about to peak, downgrades PagSeguro (PAGS.US) and StoneCo (STNE.US) to "Underweight"

Morgan Stanley published a research report, downgrading Brazil payment companies PagSeguro Digital (PAGS.US) and StoneCo (STNE.US) to "underweight", analyst Jorge Kuri expects 2024 will mark the peak of growth and profitability in the Brazilian payment industry. PagSeguro Digital and StoneCo fell more than 8% and 6% respectively by Thursday's close. The analyst wrote in a note to clients that Morgan Stanley believes "the market is missing the challenges of market saturation". The analyst considered factors such as slowing total payment volume growth, price compression and declining operating leverage when forecasting the companies' earnings per share over the next six years. Therefore, Kuri cut the companies' earnings per share in 2030 by 45%-55%. Morgan Stanley's current long-term expectations are 50%-60% lower than the market consensus. In addition, the analyst said the downgrade to underweight "reflected not only (Morgan Stanley's) concerns about the core payment business, but also its belief that these companies will ultimately fail to diversify quickly beyond payments".