On Friday, BMO Capital Markets adjusted its outlook on Block Inc. (NYSE: SQ), raising the price target to $94 from the previous $92, while maintaining an Outperform rating on the shares. The adjustment follows the company's third-quarter results and future financial guidance.
Block Inc.'s third-quarter performance was deemed relatively in line with expectations, although the fourth-quarter guidance suggested a slight softening compared to previous quarters. The 2025 projections were also provided, which the analyst believes to be conservative.
Despite a sequential deceleration in U.S. Gross Payment Volume (GPV) growth, BMO Capital expressed optimism regarding the company's future. The guidance anticipates a modest improvement in the fourth quarter and a further acceleration by 2025. The analyst's confidence is bolstered by Block's continued efforts to address and improve upon various aspects of its Square service, including product quality, reliability, customer onboarding, and distribution channels.
In light of these developments, BMO Capital has revised its earnings per share estimates for the coming years upward by approximately 2%. This revision reflects an expectation of higher gross profit growth for Block Inc. The new price target of $94 reflects these updated estimates and the firm's positive outlook on the company's financial trajectory.
In other recent news, Block Inc. reported a 19% increase in its gross profit, reaching $2.25 billion during its third-quarter earnings call. The company also projects a 14% year-over-year growth for Q4 2024. Notably, Block's adjusted free cash flow improved significantly to $1.5 billion from $945 million in the previous year.
These developments are part of Block's strategy to enhance product offerings and market expansion. In future plans, the company aims to achieve the Rule of 40 by 2026, focusing on mid-teens gross profit growth and a mid-20% adjusted operating income margin.
Additionally, Block holds over 8,300 Bitcoin, valued at approximately $530 million. 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 recent performance and BMO Capital's optimistic outlook are further supported by real-time data from InvestingPro. The company's market capitalization stands at $44.46 billion, reflecting its significant presence in the financial services industry. Block's revenue growth of 19.36% over the last twelve months as of Q2 2024 aligns with the analyst's positive view on the company's future acceleration.
InvestingPro Tips highlight that Block is trading at a low P/E ratio relative to its near-term earnings growth, with a PEG ratio of 0.11. This suggests that the stock may be undervalued considering its growth prospects, which could support BMO Capital's increased price target. Additionally, Block has shown a strong return over the last three months, with a price total return of 22.97%, indicating positive momentum that could contribute to the company meeting its future projections.
For investors seeking a more comprehensive analysis, InvestingPro offers 8 additional tips for Block Inc., providing a deeper understanding of the company's financial health and market position.
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