Wedbush analyst Moshe Katri initiated coverage of Square Inc. with a "neutral" rating and a $26.46 price target.

The company has an innovative approach that targets the incremental needs of an integrated payments solution, Katri wrote in a research note, adding that Square is poised for "hyper-growth" in revenue and improving profitability.

"The combination of the need for integrated payments, visible data breaches, [Europay, MasterCard and Visa] compliance requirements, NFC adoption, and tokenization created a significant infrastructure upgrade cycle, materially changing the relationship between the merchant processors and merchants," Katri wrote.

The analyst wrote that there is a large but untapped market opportunity for Square, which provides ancillary services and products that should help improve retention rates.

Katri is expecting Square's EPS to be 5 cents for the third quarter, 22 cents for 2017 and 40 cents for 2018.