Could the Afterpay (ASX:APT) share price hit $150 by the end of 2021?

Can the Afterpay share price end the year strongly?

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The last two and half months have been largely uneventful for the Afterpay Ltd (ASX: APT) share price.

Since the initial reaction to agreeing to be acquired by Square (NYSE: SQ) on 2 August, the buy now pay later (BNPL) provider's shares have traded largely flat and ended last week at $126.00.

Australian tech hub

Image source: Getty Images

Could the Afterpay share price reach $150 by the end of 2021?

As I alluded to above, Afterpay is in the process of being acquired by US payments giant Square.

And unlike a takeover with a fixed dollar price, this takeover is an all-scrip deal. This will see Afterpay shareholders receive a fixed exchange ratio of 0.375 shares of Square Class A common stock for each Afterpay share they hold.

This means that the Afterpay share price is intrinsically linked to the Square share price between now and the transaction completion. If the latter rises, so too does the former. And vice versa if Square's shares fall.

So if the Afterpay share price is going to climb to $150.00 by the end of the year, the Square share price is going to have to get moving.

Bullish broker

The good news for Afterpay shareholders is that one leading broker is bullish on Square. That broker is Jefferies.

According to a note from earlier this month, courtesy of CNBC, its analysts have commenced coverage on the company with a buy rating and US$300 price target.

Jefferies analyst Trevor Williams has called Square a "must-own" stock, noting that its increasingly popular Cash App is "the leader within the crowded neobank category" with "40 million monthly active users that are already highly engaged."

In addition, the broker appears to be a fan of the proposed acquisition of Afterpay.

Williams commented: "So we just think the inherent advantage of a scaled user base and a track record of demonstrated innovation in the cash app really position it well over the longer term. And then when you plug in the benefits of Afterpay, we think the positive flywheel effect there is only going to accelerate over the coming years."

What does this mean for Afterpay shares?

Based on current exchange rates and the fixed exchange ratio of 0.375 shares, if the Square share price were to reach Jefferies' price target of US$300, it would imply a takeover price of $150 per Afterpay share.

All in all, this indicates that there is potential for the Afterpay share price to be trading at that level by the end of the year.

Though, it is worth noting that shares usually trade at a discount to the takeover price to account for uncertainty. As a result, Square's shares may need to trade a little beyond Jefferies' price target to make this a reality.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and has recommended AFTERPAY T FPO and Square. The Motley Fool Australia owns shares of and has recommended AFTERPAY T FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Broker Notes

A woman in a red dress holding up a red graph.
Broker Notes

3 ASX shares UBS says will return better than 36%

These three companies have big things ahead, according to UBS.

Read more »

Young successful engineer, with blueprints, notepad, and digital tablet, observing the project implementation on construction site and in mine.
Broker Notes

Up more than 200% over a year, could this ASX lithium company double again?

The potential upside on these shares might surprise.

Read more »

Broker written in white with a man drawing a yellow underline.
Broker Notes

Buy, hold, sell: Fortescue, Northern Star, and Megaport shares

Morgans has updated its views on these shares.

Read more »

Man with his hand on his face reading a letter with bad news in it.
Broker Notes

Why were Goodman shares just downgraded?

Bell Potter has cut its rating on the industrial property company.

Read more »

Cheerful smiling businesswoman sitting on a chair and typing business report on a laptop keyboard.
Broker Notes

Broker puts fresh buy ratings and tips 36% upside for these earnings results winners 

These two shares have received upgraded outlooks.

Read more »

A distressed young woman reads bad news on her smartphone while standing in a modern indoor setting.
Broker Notes

Why were Telix shares just downgraded?

Bell Potter has become less bullish on this biotech.

Read more »

a man with his back facing the camera sits at a computer displaying a screen of code with an electric power contraption on the desk near him as he sits in concentration while appearing to mine cryptocurrency.
Broker Notes

Are Fortescue shares in the buy zone after its results?

Bell Potter has given its verdict on this mining giant's shares.

Read more »

Stressed shopper holding shopping bags.
Broker Notes

This retailer's dividend yield could top 8% in coming years: Broker

A strong profit result has set this company up for further growth.

Read more »