On Friday, Block Inc. (NYSE:SQ), a financial technology company, received a positive outlook from Citi, with an increase in the price target for its shares. The new price target is set at $86.00, up from the previous $76.00, while the firm continues to recommend a Buy rating for the stock.
The adjustment follows Block's fourth-quarter performance, which showcased effective restructuring efforts leading to a 25% EBITDA beat. This outperformance also prompted a 10% lift in the company's outlook. Additionally, Block's Square Gross Payment Volume (GPV) met expectations, supported by a notable beat in the Subscription and Services (S&S) segment.
Block's CashApp also demonstrated strong growth, with increased card penetration, reacceleration of inflows, and enhanced monetization. Momentum is building for CashApp Pay, aligning with the company's ambitious product plans. The cited products, "Borrow," "Commerce," and the newly introduced "Yield," are progressing well and are expected to bridge the gap between Block's offerings and traditional banking services, including bill payment which is anticipated to drive retention and engagement.
Citi's revised outlook also reflects an appreciation for CashApp's strategic shift back to focusing on the U.S. market. Prior to the results, there was an anticipation that it might take one to two quarters for Block to take a more aggressive stance due to restructuring. However, the recent developments suggest that there is now a solid basis for improved investor sentiment and potential for the stock's valuation to align more closely with its growth-adjusted multiple.
Citi's increased conviction in Block Inc. and the 13% raise in the target price is based on higher estimates and the belief that the stock is poised to trade at a multiple that better reflects its growth prospects. The firm's endorsement of a Buy rating on NYSE:SQ remains unchanged.
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