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Block stock rating remains Outperform; analyst anticipates GPV growth into next year

EditorAhmed Abdulazez Abdulkadir
Published 11/11/2024, 14:50
SQ
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On Monday (NASDAQ:MNDY), Bernstein reiterated its Outperform rating on Block Inc. (NYSE:SQ) with a consistent price target of $90.00. The firm's analysis highlights Square's Gross Payment Volume (GPV) growth as the primary indicator for the company's stock performance. The analyst emphasized the potential in Square's seller ecosystem, describing it as a turnaround story, while Cash App's efforts in banking, particularly with Paycheck Deposits, are noted as areas that require further evidence of success.

Block's valuation appears increasingly appealing, with the stock trading at roughly 20 times its projected 2026 GAAP earnings per share (EPS) and 13 times on a non-GAAP basis. Investors are keen to engage with the stock, according to the firm, but are seeking greater confidence in the company's revenue growth, particularly within the Square seller segment. The analyst suggests that there is a stronger historical basis for optimism in Square's operations compared to Cash App, where Block is forging a unique path.

Despite Block's third-quarter results not meeting expectations for the fourth-quarter guidance, the analyst found reasons to be positive, particularly regarding the potential acceleration of GPV in the upcoming year. The guidance shortfall was attributed to projections being deferred to 2025, but this did not overshadow the promising signs for GPV growth.

The firm's outlook on Block remains positive, with the expectation that the company's strategic initiatives will begin to bear fruit. The focus on GPV growth and the evolution of Square's seller services are central to this perspective, as Block continues to navigate its unique trajectory in the financial services sector.

The $90.00 price target set by Bernstein reflects a vote of confidence in Block's strategic direction and its ability to execute on key growth metrics, despite the recent pushback of some financial targets into 2025. The firm's analysis suggests that Block's current valuation presents an attractive entry point for investors who are convinced of the company's growth prospects.

In other recent news, Block Inc. has shown significant growth in its financial performance. The company's third-quarter earnings call reported a 19% increase in gross profit, reaching $2.25 billion. Additionally, Block's adjusted free cash flow significantly improved to $1.5 billion from $945 million in the previous year. The company projects a 14% year-over-year growth for Q4 2024.

In response to these developments, BMO Capital Markets has raised its price target for Block Inc. to $94, maintaining an Outperform rating on the shares. The adjustment follows the company's third-quarter results and future financial guidance. BMO Capital has revised its earnings per share estimates for the coming years upward by approximately 2%, reflecting an expectation of higher gross profit growth for Block Inc.

In terms of future plans, 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. As part of its expansion efforts, the company plans to enhance its product offerings, including the rollout of Afterpay on the Cash Card.

InvestingPro Insights

Block Inc.'s (NYSE:SQ) recent performance and future prospects align with several key insights from InvestingPro. The company's market cap stands at $46.21 billion, reflecting its significant presence in the financial services sector. An InvestingPro Tip highlights that Block is a "Prominent player in the Financial Services industry," which supports Bernstein's focus on the company's potential.

The article's emphasis on Block's growth potential is reinforced by InvestingPro data showing a revenue growth of 14.75% over the last twelve months. This growth trajectory is crucial for the company's valuation, which currently sits at a P/E ratio of 44.85. An InvestingPro Tip notes that Block is "Trading at a high earnings multiple," which aligns with the article's discussion on valuation and investor interest.

Bernstein's optimism about Block's future earnings is echoed in an InvestingPro Tip stating that "Net income is expected to grow this year." This expectation could be a key driver for the stock's performance, especially considering the strong 44.78% price return over the past year.

For investors seeking more comprehensive analysis, InvestingPro offers 11 additional tips for Block Inc., providing a deeper understanding of the company's financial health and market position.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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