On Tuesday, Mizuho Securities adjusted its outlook on Block Inc. (NYSE: SQ) stock, the financial services and mobile payment company formerly known as Square. The firm reduced its price target to $94 from the previous $106 while maintaining an Outperform rating on the stock.
The revision of the price target is influenced by a detailed model that considers various segments within Block's ecosystem, including Square and Cash App. The model anticipates a 19% growth in Block's gross profit for 2024, which is slightly above the company's own guidance of 18%.
Despite the reduction in price target, the analyst sees potential for over 22% growth driven by several factors. These include Square's continued incremental share gains of Visa (NYSE:V) and Mastercard (NYSE:MA) volume growth in the U.S., an increase in monthly active users as Block aims to broaden Cash App's user base, and efforts to convert more users to direct deposit through incentives for new paycheck depositors.
The updated valuation of Block Inc. is based on 13 times the firm's 2026 EBITDA estimate, down from the previous multiple of 17 times the 2025 estimate.
The new valuation reflects a modest premium over the legacy payment group average of 12 times due to Block's superior innovation and growth potential. However, it also accounts for lower market valuations following a recent market correction, leading to the revised price target.
Mizuho's outlook incorporates the introduction of the 2026 estimates into its model, signaling a long-term perspective on the company's financial prospects. The firm's analysis suggests that despite the near-term market headwinds, Block's strategic initiatives could foster robust growth in the coming years.
In other recent news, Square, Inc. has reported a substantial performance for the second quarter of 2024, with gross profit rising to $2.23 billion, marking a 20% increase from the previous year.
The company's Cash App's gross profit also surged by 23% year-over-year to $1.3 billion. Adjusted EBITDA nearly doubled to $759 million, and adjusted operating income increased significantly to $399 million, a leap from $25 million the previous year.
In light of these developments, Square has raised its full-year 2024 gross profit guidance to at least $8.89 billion and has announced a $3 billion share repurchase program.
The company is transitioning to a functional organizational structure to enhance technology, design, and product development. It anticipates continued gross profit growth, with Cash App and Square's growth remaining stable.
CEO Jack Dorsey and CFO Amrita Ahuja have provided insights into Square's strategic direction, emphasizing product simplification and system improvements.
They also highlighted the company's capital allocation strategy, aiming to become a Rule of 40 company and return capital to shareholders through share repurchases.
Square is positioning Cash App as the primary financial tool for customers, with a focus on Gen Z and millennial segments, and expects to capture a majority of the market share in Bitcoin mining hardware solutions through its Core Scientific deal.
InvestingPro Insights
As Block Inc. (NYSE: SQ) navigates a dynamic financial landscape, real-time metrics from InvestingPro provide a comprehensive overview of the company's performance. With a market capitalization of approximately $35.22 billion, Block's valuation is underscored by a P/E ratio of 51.05. This figure reflects a high earnings multiple, which aligns with the company's position as a prominent player in the Financial Services industry. In the last twelve months leading up to Q2 2024, Block has reported a revenue growth of 19.36%, showcasing its ability to expand its financial footprint despite market fluctuations.
InvestingPro Tips highlight the expected growth in net income for the current year, with 13 analysts revising their earnings projections upwards for the upcoming period. This optimism is bolstered by the company's strong gross profit margin of 35.42% in the same period, indicating efficient operations and a solid business model. Additionally, Block's liquidity position is reassuring, with liquid assets surpassing short-term obligations, suggesting financial resilience in meeting immediate liabilities.
Investors interested in a deeper analysis can explore additional insights on Block Inc. with further InvestingPro Tips available for review, offering a nuanced understanding of the company's prospects and investment potential.
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