On Friday, Monness, Crespi, Hardt issued an upgrade for Block Inc. (NYSE: SQ) shares, shifting its rating from Neutral to Buy and establishing a new price target of $115.00. The firm's decision to upgrade is based on several key factors that indicate a positive outlook for the company's future performance. According to InvestingPro data, Block has demonstrated strong momentum with a remarkable 50.91% price return over the past six months, while maintaining a GOOD financial health score.
The analyst's upgrade is driven by the robust growth in Cash App's monetization, user base, and inflows, which are expected to be well-positioned for continued expansion in 2025. This optimism is further supported by the progress made on Cash App Pay/Card functionalities, the unification of apps, and the diversification and maturation of distribution at Square (NYSE:SQ). The company's revenue growth of 14.75% in the last twelve months validates this positive outlook.
Moreover, the anticipated introduction of new features to Cash App, including Buy Now, Pay Later (BNPL) options, as well as enhancements to Square's offerings, especially in high-software-attach verticals such as restaurants, are seen as positive developments.
The firm also points to Block's improving competitive positioning, particularly as it navigates key man risks at FI/FOUR. Despite the recent increase in share prices, analysts believe that Block's stock represents a solid entry point for investors. The underlying payment and spending operations of Block are still in the early stages of realizing their free cash flow potential, according to the firm.
The analysis projects that Block's margins and growth have significant room for improvement as the company continues to refine its products and distribution strategies in both Cash App and Square, complemented by incremental performance marketing.
The firm anticipates that Block's free cash flow could compound annually at a 15% rate through 2033, based on topline expansion slightly above the merchant acquiring industry's growth and substantial improvements in EBIT.
The forecast for 2033 includes more than $6.5 billion in free cash flow and over $9.5 billion in EBITDA, leading to a projected future enterprise value of approximately $165 billion for Block. This valuation implies a relatively modest 17x multiple, which the firm considers reasonable given the company's growth prospects and cost of capital.
InvestingPro analysis suggests Block is currently undervalued, trading at $94.59 with a P/E ratio of 55.64. For deeper insights into Block's valuation and growth metrics, along with 12 additional ProTips, investors can access the comprehensive Pro Research Report available on InvestingPro.
The analysis concludes that a business with sustainable growth, cost of capital, and return on invested capital metrics that Block is expected to achieve warrants a multiple of around 17.5x, with the firm predicting Block's return on invested capital to eventually range from the high teens to low twenties.
In other recent news, Block Inc. received an upgrade from BTIG, setting a new price target of $110 while maintaining a 'Buy' rating. The firm highlighted Block's unique growth strategies, which have resulted in a robust 14.75% revenue growth. Mizuho (NYSE:MFG) also increased its price target for Block Inc. from $94 to $110, reflecting a positive outlook on the company's growth potential.
Block's financial performance has been strong, with a 19% increase in gross profit, reaching $2.25 billion, and an improved adjusted free cash flow of $1.5 billion. The company expects a 14% year-over-year growth for Q4 2024.
On the product development front, Block introduced a new inheritance feature for its Bitkey bitcoin wallet, simplifying the process of transferring digital assets to beneficiaries after the owner's passing.
In terms of future expectations, Block aims to achieve the Rule of 40 by 2026, focusing on mid-teens gross profit growth and a mid-20% adjusted operating income margin. These recent developments highlight the strategic direction of Block Inc. and its potential for continued growth.
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