On Tuesday, Block Inc. (NYSE:SQ), formerly known as Square (NYSE:SQ), received a vote of confidence from Benchmark as the firm initiated coverage on the financial technology company's stock. Benchmark gave Block Inc. a Buy rating, setting a price target of $89.00. The firm's analysis suggests that Block's focus on profitability and expense control could significantly contribute to achieving its target of a mid-20s adjusted operating margin by 2026, which includes share-based compensation.
The recent performance of Block Inc. has shown a sharp rally over the past three months, and Benchmark anticipates this upward momentum to persist. The firm's optimism is partly based on the company's strategic emphasis on profitability, which is expected to lead to an expansion of the stock's multiple as progress is made.
Block Inc.'s current trading metrics were also highlighted in the coverage, with a note that the stock is trading at a price-to-forward sales ratio of just 1.7 times the consensus FY24E sales. According to Benchmark, this valuation does not fully account for the growth potential of Block's Cash App and Square ecosystems. The analyst underscored the importance of the emerging synergies between these two platforms.
The company's goal is to reach an adjusted operating margin in the mid-20s percent range within the next couple of years. As Block Inc. moves towards this financial objective, the expectation is that the company's stock valuation will reflect its efforts and growth trajectory more accurately.
Benchmark's initiation of coverage and the setting of a price target come as a significant development for Block Inc., outlining the potential for the company's continued growth in the fintech sector. The firm's analysis indicates a positive outlook for the stock, based on both current performance and strategic initiatives aimed at enhancing profitability.
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