Q2 Holdings Named Top Pick as Piper Sandler Initiates Payments Sector Coverage

Piper Sandler initiated coverage on a group of financial infrastructure and payments companies on Thursday, designating Q2 Holdings (NYSE:QTWO) as its preferred stock with an "Overweight" rating. The brokerage set an $82 price target for the company, implying a potential upside of approximately 36% from its recent share price.

Rationale for 'Overweight' Rating

Piper Sandler's positive outlook is rooted in what it described as Q2's strong recurring revenue growth, improving margins, and accelerating free-cash-flow conversion. The firm noted that Q2's earnings growth and margin expansion could drive share price gains without the stock needing to return to its historically elevated valuation multiples.

The brokerage highlighted several key metrics supporting its thesis:

• Recurring Revenue: Subscription revenue constituted about 83% of total revenue in the second quarter, up from approximately 73% in the first quarter of 2021.
• Revenue Growth: Total annualized recurring revenue grew to roughly $971 million in the second quarter, a significant increase from about $401 million in the fourth quarter of 2019.
• Future Revenue: Remaining performance obligations reached $2.76 billion, indicating a strong pipeline of contracted future revenue.

Piper Sandler also emphasized the strength of Q2's core-agnostic platform, which allows it to integrate with incumbent banking systems rather than requiring a full technology replacement. The report noted that Q2 has been selected as the technology provider in more than 90% of customer mergers and acquisitions tracked since 2021.

Financial Projections

Ad

Looking ahead, Piper Sandler projects Q2 Holdings will generate adjusted earnings per share of $3.57 in fiscal 2027 and $4.41 in fiscal 2028. These figures represent estimated year-over-year growth of about 27% and 24%, respectively. The firm also forecasts free cash flow to reach $271 million in fiscal 2027 and $315 million in fiscal 2028.

Broader Sector Coverage

As part of its broader sector initiation, Piper Sandler assigned "Neutral" ratings to several other industry players. Jack Henry received a $171 price target, with the firm noting its high-quality business is already reflected in its valuation.

Other companies initiated with "Neutral" ratings include:

• Fidelity National Information Services (FIS): $42 price target
• Global Payments (GPN): $101 price target
• WEX (WEX): $209 price target

The brokerage sees an improvement path for FIS through simplification, while noting Global Payments could benefit from its Worldpay integration. For WEX, Piper Sandler cited diversification benefits but also pointed to cyclicality and credit-related risks.