StoneCo Ltd.: Risk Reward Update

Research evidence excerpt

StoneCo Ltd.: Risk Reward Update

UpdateM

RiskRisk RewardReward– StoneCo- StoneCoLtd. (STNE.O) Ltd. (STNE.O)

Underweight on headwinds from market saturation, competition, and regulation

PRICE TARGET US$9.00 UNDERWEIGHT THESIS

Our valuation work is based on Discounted Free Cash Flow (free cash flow defined as EBIT We expect a continued slowdown in TPV

less cash taxes on EBIT, depreciation, capex, and changes in working capital) and Economic growth at Stone, on the back of saturation

Profit model. Our valuation work assumes a WACC of 12.5%. in digital payments. Stone's market share

gains should remain under pressure, because

US$17.27 it has a large share in MSMB and saturation

Consensus Price Target Distribution US$8.99 US$23.17 leads to increased competition. We

MS PT anticipate competition will drive pricing

Source: Refinitiv, Morgan Stanley Research Mean Morgan Stanley Estimates pressure, particularly in pre-payment, which

drives 100% of Stone's profits. Regulatory

risks to the availability of parcelados could

RISK REWARD CHART also pressure pre-payment. We see

diminishing operating leverage due to rising

sales & marketing expenses in a more

USD competitive market. And, we think, banking,

US$16.00US$16.00(+44.80%)US$16.00(+44.80%)(+44.80%) credit, & software are unlikely to offset the

decline in the payments business given their

16 relatively small size.

12 US$11.05US$11.05US$11.05 Consensus Rating Distribution

US$9.00US$9.00(-18.55%)US$9.00(-18.55%)(-18.55%) 64% Overweight

8 29% Equal-weight

7% Underweight

MS Rating

Source: Refinitiv, Morgan Stanley Research

US$4.00US$4.00(-63.80%)US$4.00(-63.80%)(-63.80%)

MAY '25 NOV '25 MAY '26 MAY '27 Risk Reward Themes

Key: Historical Stock Performance Current Stock Price Price Target Contrarian: Negative

Pricing Power: Negative