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Investing.com -- Morgan Stanley upgraded Block Inc. to Equal-Weight from Underweight in a note Tuesday, stating that the stock’s current valuation now adequately reflects key risks.
The firm maintains its $65 price target on Block shares, noting that the market has adjusted to the challenges surrounding Square Seller growth and the Cash App’s demographic limitations.
“Trading at ~$66 as of 2/24 (down 20% since the 2/20 print), we see the risk/reward for Block as more balanced,” Morgan Stanley (NYSE:MS) stated.
The bank highlighted concerns about Block’s ability to accelerate Square Seller growth while acknowledging that Cash App’s valuation now aligns more closely with its actual market potential.
Investor sentiment appears to have shifted, with Morgan Stanley noting that expectations for Square Seller’s gross payment volume (GPV) acceleration have tempered.
“We think investors were disappointed by the level of acceleration needed in 2H to meet Block’s 15% gross profit growth target,” the firm added. Increased competition from Toast (NYSE:TOST), Clover, and Shift4 is also seen as a hurdle to Square’s market share retention.
Despite these challenges, Morgan Stanley sees potential in Block’s expanding credit offerings.
“We’re actually encouraged by the faster pace of credit expansion,” the analysts wrote, pointing to the scaling of Cash App Borrow and Buy Now, Pay Later (BNPL) features. However, they caution that the average loan sizes remain small, limiting their impact on long-term customer retention.
Overall, the firm views Block’s valuation as fair, given the execution risks in Square Seller and regulatory uncertainties surrounding Cash App.
Morgan Stanley sees limited near-term upside but acknowledges that expanding credit products could help sustain growth in the coming years.