On Monday, Wolfe Research maintained its Outperform rating on Block Inc. (NYSE: SQ) with a steadfast $85.00 price target. Despite Block's shares declining by 10% year-to-date, in contrast to the S&P 500's 22% rise and the S&P Equal-Weighted Index's 13% increase, the firm remains optimistic about the company's prospects.
The research firm acknowledges the innovative edge of Block Inc., particularly its technological differentiation, which is expected to help the company gain market share through its Square and Cash App platforms in the long term. The firm also notes the presence of uncertainties, especially concerning Square's stability and growth in Gross Payment Volume (GPV) and Gross Profit (GP), which are essential for the stock to significantly outperform in the future.
Wolfe Research points to recent initiatives by Block, such as banking and direct deposit features in Cash App, as potential drivers for substantial inflows into the company's ecosystem. These initiatives are anticipated to support a more sustainable growth model for Cash App and may lead to performance exceeding current expectations.
Additionally, Block Inc. has set a goal to achieve the 'rule-of-40' by the fiscal year 2026, which would reflect a balance of growth and profitability through notable adjusted operating income margin expansion. The integration of Afterpay (APT) into Block's ecosystem is also seen as a strategic move that could enhance the symbiotic relationship between the company's business segments.
The firm's year-end 2025 price target of $85 is based on approximately 20 times its calendar year 2026 estimate for SBC-expensed EPS of $4.31. Wolfe Research's stance on Block Inc. remains positive, underpinned by the company's ongoing efforts to innovate and expand its financial services.
In other recent news, Block Inc., formerly known as Square, has reported significant growth in its second quarter earnings. The company showed a 20% increase in gross profit to $2.23 billion, and a 23% year-over-year surge in Cash App's gross profit to $1.3 billion. Adjusted EBITDA nearly doubled to $759 million, and adjusted operating income rose notably to $399 million.
Block Inc. has launched a new Orders Platform, offering expanded commerce capabilities to U.S. sellers. The platform provides more flexibility at checkout, including options for ordering ahead, opening a bar tab, or setting up subscriptions. Analysts from KeyBanc reiterated an Overweight rating on Block Inc., emphasizing that the platform bolsters Square's competitive edge, particularly in the restaurant and service sectors.
Various analyst firms have provided their ratings on Block Inc. Deutsche Bank and BofA Securities maintained their Buy ratings, while Mizuho Securities reduced its price target but kept an Outperform rating. New Street Research initiated coverage on Block shares with a Neutral rating, highlighting the importance of reversing market share losses and fostering a balanced ecosystem.
InvestingPro Insights
Block Inc.'s financial metrics and market performance align with Wolfe Research's optimistic outlook. According to InvestingPro data, Block has shown impressive revenue growth of 19.36% over the last twelve months, with quarterly revenue growth of 11.21% in Q2 2024. This growth trajectory supports the firm's view on Block's potential to gain market share through its Square and Cash App platforms.
InvestingPro Tips highlight that Block is trading at a low P/E ratio relative to near-term earnings growth, with a PEG ratio of 0.11, suggesting the stock may be undervalued considering its growth prospects. This aligns with Wolfe Research's $85 price target, which implies significant upside potential from the current price of $69.70.
The company's focus on achieving the 'rule-of-40' by 2026 is reflected in its improving financials. Block's EBITDA growth of 906.12% over the last twelve months indicates substantial progress in profitability, which could support the targeted operating income margin expansion.
For investors seeking more comprehensive analysis, InvestingPro offers 11 additional tips for Block Inc., providing deeper insights into the company's financial health and market position.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.