Judging by the sharp rally in Block Inc. shares, you could say it was a blockbuster quarter for the Square and Cash App parent company.
Impressive Stock Performance
Block’s stock SQ, +5.41% was ahead 17% in premarket trading Friday and would log its best day in over 15 months — since it rose 17.8% on Nov. 10, 2022 — if current gains carried through to the regular session. The payment-technology company showed bottom-line improvement with its latest report and impressed Wall Street with its talk of efficiency.
Positive Analyst Reviews
The company’s “progress over the past several months in terms of streamlining itself organizationally, sharpening its focus within its two key businesses Square and Cash App, and becoming hyper-focused on driving profitable growth has been impressive — and we think there’s more to go,” wrote Seaport Research analyst Jeff Cantwell.
He turned bullish on Block’s stock after its Thursday afternoon earnings report, cheering management’s “excellence in execution” and the company’s “compelling” margin expansion. Block posted a 28% margin on adjusted earnings before interest, taxes, depreciation and amortization (Ebitda) — up 1,100 basis points from a year before.
“We think it’s very rare to see that level of operating leverage in the space right now, particularly in the current macro environment, and it’s the key reason which compels us to change our investment thesis on the company,” Cantwell wrote, as he lifted his price target on the stock to buy from neutral. He has a $95 target price on shares.
Analyst Praises
Benchmark Company analyst Mark Palmer lauded Block as “one of the most compelling stock stories” in fintech, in part due to his “expectation that management’s focus on controlling expense growth would have a dramatic impact on SQ’s profitability.”
Further, Palmer is upbeat about Block’s work to grow its Cash App mobile wallet and convince more users to try banking services within it.
Analysis and Projections
Strong Belief in Cash App's Potential
He pointed to his belief that the Cash App’s ability to serve as a bank-account substitute for millions of unbanked and underbanked consumers, combined with management’s efforts to boost monetization through price increases, would drive the company’s top- and bottom-line growth.
Stock Ratings and Target Prices
Palmer rates the stock at buy with an $89 target price. Bernstein’s Harshita Rawat, on the other hand, commented that Block has started to mirror Meta in finding “religion” on operating expenses, helping to pull the name out of a “no-man’s land of not being growthy enough for growth investors or profitable enough.”
Profit Progress and Growth Outlook
Block posted a GAAP profit in its latest quarter, shares are “now attractive on GAAP” metrics. Rawat has an outperform rating on the stock, upping her target price to $90. Truist Securities analyst Andrew Jeffrey argued that Wall Street wasn’t giving the Cash App enough credit considering its potential in generating revenue through its internal banking offerings.
New Solutions for Driving Growth
“By contrast, the company highlighted new solutions aimed at driving greater direct deposits, hence more daily use,” stated Jeffrey. He boosted his price target to $100 from $90 late Thursday, while reiterating a buy rating.
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