Shares of Block Inc. (SQ) rose 1.8% in premarket trading Tuesday after BTIG analysts upgraded the stock to Buy from Neutral on “company’s growth opportunities” alongside its focus on improving profitability.
Because of this, SQ presents “an attractive investment opportunity with the stock trading at ~17x FY24E EV/adjusted EBITDA,” analysts wrote.
BTIG said the core of its investment thesis is centered on Block’s strong presence in both consumer and merchant markets through its Cash App and Square platforms, as well as potential for both ecosystems “to become stronger as integrations are built between them.”
“At the same, we believe the Cash App and Square ecosystems are strong as individual units and have track records of providing value which we expect to continue in FY24+,” the team noted.
Also, the broker believes investors should not ignore Jack Dorsey’s comments in Block’s Q3 2023 shareholder letter, in which he said the company "finally has a line of sight to seeing more of Square within Cash App, and Vice Versa."
Moreover, analysts believe Cash App will maintain its status as a premier alternative to traditional banking, citing a promising path for growth, particularly through enhancing engagement with its current user base.
For instance, out of approximately 55 million monthly active users on Cash App, only about 2 million are utilizing its Borrow feature, indicating significant potential for expansion in this area, they wrote.
“We also are attracted to SQ's increased focus on costs and expect the company to reach its goal of mid-20s adjusted operating margin (including stock-based comp) by 2026, which we think will align with investors who are increasingly focused on GAAP profitability,” BTIG said.