Citi analyst upgrades Block’s growth trajectory, sees strong mid-term potential

EditorAhmed Abdulazez Abdulkadir
Published 15/01/2025, 03:20 am
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On Tuesday, Citi analyst Andrew Schmidt increased the price target on Block Inc. (NYSE:SQ) to $108 from the previous $90 while reaffirming a Buy rating on the company's shares. With analyst targets ranging from $40 to $125 and Block currently trading at $84.17, InvestingPro analysis suggests the stock is currently undervalued.

Schmidt's update followed a series of strategic assessments, including the addition of Block to Citi's top call list and the maintenance of a bullish stance on CPAY. The analyst also adjusted ratings for other companies in the financial technology and payments sector, downgrading WEX (NYSE:WEX) to Neutral from Buy and suggesting a pair trade favoring RELY over WU.

Schmidt's commentary highlighted Block's potential for a breakout year in 2025, noting the company's refocus on its core competencies in product development. With a strong financial health score rated as GOOD by InvestingPro and impressive revenue growth of 14.75% in the last twelve months, this shift is seen as crucial for maintaining Block's competitive edge in the FinTech and payments industry.

The analyst pointed out that while product innovation is essential, distribution is an often-underappreciated aspect that Block is looking to evolve. Increased investment in sales and marketing is expected to boost the Seller Gross Payment Volume (GPV) in the short term.

For the Cash App segment of Block's business, the focus is on direct deposit and enhancing engagement with high-value features such as Cash Card, Borrow, Afterpay, and Cash App Pay. These initiatives are anticipated to continue driving growth for the company.

Block's unique position with a two-sided ecosystem, supported by a healthy current ratio of 2.07 and robust market capitalization of $52 billion, is predicted to yield additional benefits in the coming years as the company scales and refines its focus.

Schmidt also mentioned that Block's revenue and productivity initiatives are on track to support the 'Rule of 40' by 2026, which balances growth and profitability. The analyst believes that achieving mid-teens or better gross profit growth for FY25 could further improve investor sentiment and potentially lead to a re-rating of Block stock.

For deeper insights into Block's valuation and growth metrics, investors can access the comprehensive Pro Research Report available on InvestingPro, which covers over 1,400 US equities with detailed analysis and actionable intelligence.

In other recent news, Block Inc. has made significant strides in its financial performance, with a 19% increase in gross profit, reaching $2.25 billion, and an improved adjusted free cash flow of $1.5 billion. The company also anticipates a 14% year-over-year growth for Q4 2024. Block's Seller Gross Payment Volume (GPV) is expected to accelerate into double digits in 2025, according to Raymond (NS:RYMD) James, which recently reiterated an Outperform rating for the company.

Block has also been the subject of several analyst upgrades. Monness, Crespi, Hardt upgraded Block's shares from Neutral to Buy, setting a new price target of $115.00. Similarly, BTIG has maintained a 'Buy' rating, setting a new price target of $110. These positive assessments are based on the company's strong financial performance and its potential for continued growth.

In addition to these financial highlights, Block has entered a strategic partnership with global foodservice distributor Sysco (NYSE:SYY) to offer advanced technology solutions to restaurants worldwide. The company also introduced a new inheritance feature for its Bitkey bitcoin wallet, simplifying the process of transferring digital assets to beneficiaries after the owner's passing.

Looking forward, 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.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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