This Latin American payments stock is 'turning the corner' and could rally 28%, HSBC says

HSBC has upgraded Latin American online payments provider dLocal to Buy from Hold, raising its price target to $15, citing the company's significant long-term growth potential and tangible momentum. This upgrade is driven by strong Q2 earnings, improved disclosures, better-than-expected cost control, and strategic global expansion, which are seen as signs of dLocal regaining market confidence and positioning for future operating leverage. Despite its current market capitalization being significantly lower than its 2021 IPO valuation, HSBC projects a potential 28% gain, indicating a positive outlook for the stock.

Analysis

HSBC has upgraded dLocal (DLO) to Buy from Hold, increasing its price target to $15, which suggests a potential 28% upside over the next year. This upgrade follows a period of strong performance, with the stock gaining 51% over the last year and an additional 20% in early trading following its second-quarter results. The analyst's bullish thesis is anchored in tangible operational momentum, evidenced by a significant earnings beat, continued strong volumes, and better-than-expected cost control, all achieved while investing in personnel and technology. Strategically, the company is widening its global footprint, having secured a U.K. payment institution license in January, and is introducing new products to enhance its competitive offering. Crucially for regaining investor trust after its valuation declined from a $9 billion IPO level to its current $3.3 billion, dLocal has demonstrated improving corporate disclosures and low earnings volatility. HSBC sees the company on a clear path to recovery, with further benefits anticipated from a lower cost of equity and increased operating leverage by 2026.

Key Decisions for Investors

• Given the strong operational momentum, significant earnings beat, and HSBC's upgrade to a $15 price target, investors may consider this an opportune moment to initiate or add to positions in DLO to capitalize on the company's turnaround narrative.
• Investors should closely monitor dLocal's ability to maintain its cost-control discipline and strong volume growth in subsequent quarters, as consistent performance is cited as crucial for fully regaining market confidence.
• While near-term sentiment is driven by recent earnings, long-term value depends on the successful execution of global expansion, the market adoption of its new products, and achieving the projected operating leverage by 2026.