On Monday, Mizuho (NYSE:MFG) showed confidence in Block Inc. (NYSE:SQ) shares, the financial services and mobile payment company, by increasing its price target from $94.00 to $110.00. The firm retained its Outperform rating on the stock. The adjustment reflects a positive outlook on the company's growth potential, particularly in its gross profit (GP) projections for the year 2025.
The analyst at Mizuho addressed investor concerns regarding Block's ambitious guidance for a minimum of 15% GP growth by 2025. A thorough analysis of Block's three ecosystems led to the conclusion that such targets are attainable.
The Cash App, excluding the Buy Now, Pay Later (BNPL) services, is expected to see GP grow at a mid-teens rate, even with a moderate increase in monthly active users (MAUs), inflows per MAU, and monetization rates.
Furthermore, the Square ecosystem is projected to achieve over 12% growth in GP. This optimism is based on new initiatives such as verticalization and simplified merchant onboarding, which could enhance Square's share of incremental Visa (NYSE:V) and Mastercard (NYSE:MA) volumes in the United States to above 3%, a significant rise from the current levels of less than 2%.
Moreover, assuming that the ratio of Block's BNPL gross merchandise volume (GMV) to that of Affirm Holdings Inc.'s (NASDAQ:AFRM) remains consistent, the analysis suggests a high-20s percentage growth in Block's BNPL GP for 2025, in line with Affirm's expectations for fiscal year 2025.
Combining these analyses, the conservative estimate points to at least 16% total GP growth for Block in 2025. This has prompted Mizuho to revise its GP and EBITDA estimates for 2025 and 2026 upwards, leading to the new price target of $110.00 for Block Inc. shares.
In other recent news, Block Inc. has demonstrated strong financial performance with a 19% increase in gross profit, reaching $2.25 billion. The company's adjusted free cash flow also improved significantly to $1.5 billion from $945 million in the previous year. Block projects a 14% year-over-year growth for Q4 2024.
In the realm of product development, the company introduced a new inheritance feature for its Bitkey bitcoin wallet. This feature simplifies the process of transferring digital assets to beneficiaries after the owner's passing, aiming to enhance user experience and security in digital asset management.
Analysts have also provided their insights. Bernstein maintains an Outperform rating on Block Inc. with a price target of $90.00, citing Gross Payment Volume (GPV) growth as a key indicator. BMO Capital Markets has upgraded its price target for Block Inc. to $94, keeping an Outperform rating.
In terms of future expectations, Block aims to achieve the Rule of 40 by 2026, focusing on mid-teens gross profit growth and a mid-20% adjusted operating income margin. This is part of the company's expansion efforts, which include enhancing product offerings such as the rollout of Afterpay on the Cash Card. These are some of the recent developments in the company's strategy for continued growth.
InvestingPro Insights
Recent data from InvestingPro aligns with Mizuho's optimistic outlook on Block Inc. (NYSE:SQ). The company's market cap stands at $57.18 billion, reflecting its significant presence in the financial services industry. Block's revenue growth of 14.75% over the last twelve months as of Q3 2024 supports the analyst's projections for continued expansion.
InvestingPro Tips highlight that Block is expected to see net income growth this year, and analysts predict the company will be profitable. This aligns with Mizuho's positive stance on Block's gross profit growth potential. Additionally, Block's strong return over the last month (27.06%) and three months (41.16%) suggests growing investor confidence in the company's strategy and market position.
It's worth noting that Block is trading near its 52-week high, with its current price at 98.02% of the peak. This, coupled with the InvestingPro Tip indicating a high return over the last year (54.67%), reinforces the market's positive sentiment towards the stock.
For investors seeking a more comprehensive analysis, InvestingPro offers 14 additional tips for Block Inc., providing a deeper understanding of the company's financial health and market position.
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