On Thursday, BofA Securities maintained a Buy rating on Block Inc. (NYSE:SQ), with a consistent price target of $82.00. The firm's stance comes after a virtual investor meeting with Block's Investor Relations team. The discussion highlighted Block's renewed focus on the day-to-day operations of its Square (NYSE:SQ) business, aiming to boost the growth of Gross Payment Volume (GPV), a key performance indicator for the company.
BofA Securities believes that Block Inc.'s emphasis on improving execution within the Square segment will lead to a re-acceleration of Square's GPV. According to the firm, this metric is crucial for the valuation of the company's shares.
They anticipate that the initiatives for product development and market approach that are currently in place will begin to show positive results by 2025.
The analyst pointed out that Block's shares are currently trading at attractive valuation multiples. Specifically, they are trading at approximately four times the estimated enterprise value to GPV (EV/GP) and ten times the estimated enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA) for the calendar year 2025. These figures suggest that the company's stock is undervalued.
The firm further commented on the quality of Block's business model, which they believe is not fully recognized by the market. The emphasis on the business model's strength and potential for growth underpins the rationale for maintaining the Buy rating on the company's shares.
In summary, BofA Securities has reaffirmed their positive outlook on Block Inc., emphasizing the company's strategic focus and attractive valuation as reasons for investors to consider the stock favorably. The price target of $82.00 remains unchanged, reflecting the firm's confidence in the long-term prospects of Block Inc.
In other recent news, Block Inc., formerly known as Square, has demonstrated a strong performance in the second quarter of 2024. Gross profit rose to $2.23 billion, 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.
Mizuho Securities revised its outlook on Block Inc., reducing its price target to $94 from the previous $106 while maintaining an Outperform rating.
The new valuation reflects a modest premium over the legacy payment group average due to Block's superior innovation and growth potential. Nevertheless, it also accounts for lower market valuations following a recent market correction, leading to the revised price target.
In light of these developments, Block 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.
InvestingPro Insights
Amid the positive outlook from BofA Securities, Block Inc. (NYSE:SQ) showcases several promising indicators that align with the firm's analysis. An InvestingPro Tip points out that net income for Block is expected to grow this year, which may be a key factor behind the Buy rating and the anticipated re-acceleration of the company's Gross Payment Volume (GPV). Additionally, the fact that 16 analysts have revised their earnings upwards for the upcoming period signals a consensus optimism that could fuel investor confidence.
From the perspective of InvestingPro Data, Block's market capitalization stands at a robust $40.53 billion. The company's Price to Earnings (P/E) ratio is currently high at 59.3, suggesting that investors are willing to pay a premium for its earnings potential. Furthermore, the company's revenue growth over the last twelve months as of Q2 2024 is an impressive 19.36%, which may justify the high earnings multiple to some investors.
For those interested in delving deeper into Block's financial health and future prospects, InvestingPro offers additional insights and tips. Currently, there are 9 more InvestingPro Tips available, which can provide a more comprehensive view of the company's performance and market position. Visit https://www.investing.com/pro/SQ to explore these in detail.
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