On Monday, Barclays (LON:BARC) reiterated its Overweight rating on Block Inc. (NYSE:SQ), maintaining a $100.00 stock price target for the financial services and mobile payment company. The firm's positive outlook is based on a suite of new products and capabilities that are expected to drive gross profit growth and improve investor sentiment starting in 2025.
According to the firm, Block has introduced several new features, including Cash App Pay, a Buy Now, Pay Later (BNPL) option for Cash App Debit Cards, high yield capabilities within Cash App, an overhaul of the Seller business, and potential third-party distribution opportunities for Seller services. These innovations are anticipated to contribute to a re-acceleration of the company's gross profit growth.
The report projects that Block's GAAP margins will continue to expand, reaching 18.6% in 2025 and 22.5% in 2026. This expansion is expected to generate approximately $3.86 and $5.02 of GAAP EPS (earnings per share) respectively for those years.
With these estimates, Block's stock is currently trading at 16 times the projected 2025 GAAP P/E (price-to-earnings) and 12.5 times the projected 2026 GAAP P/E, which Barclays considers to be well below fair value.
The firm also forecasts that the gross profit growth will become more stable and accelerate due to the ramp-up of new products, which could lead to a reevaluation of the company's valuation by investors.
Once there is a visible stability and acceleration in gross profit growth, Barclays anticipates that the GAAP valuation will seem disconnected at 12.5 times the 2026 GAAP P/E. The firm suggests that a more reasonable multiple would be over 20 times, indicating a potential upside of more than 40% from current price levels.
In other recent news, Block Inc. has been the subject of several significant developments. Goldman Sachs (NYSE:GS) recently initiated coverage on the company with a buy rating, highlighting Block's strong track record of product innovation and its prominent role in the SMB payments and consumer fintech sectors.
Block has also upsized its private placement offering to $2 billion of 6.50% senior notes due 2032, exceeding the initially planned $1.5 billion. The proceeds from this offering are intended for various corporate purposes, including potential debt repayment and strategic transactions.
Furthermore, analysts from TD Cowen have addressed the potential impact of a new rule from the Consumer Financial Protection Bureau on Block, suggesting that the costs associated with compliance would likely be minimal.
On the investment front, ARK ETF has adjusted its portfolio, reducing its holdings in Block by selling 110,334 shares. This move indicates a shift in ARK's investment stance on the financial services and digital payments firm.
These recent developments underscore Block's ongoing growth and strategic focus in the financial technology sector. Still, as always, investors are advised to consider analyst ratings and market developments in the context of their individual investment strategies and risk tolerance.
InvestingPro Insights
As Block Inc. (NYSE:SQ) ventures into a phase of innovation with new product launches, real-time data from InvestingPro provides a deeper look into the company's financial health and market position. Block's market capitalization stands at a robust $40.38 billion, reflecting its significant presence in the financial services sector.
With a forward-looking P/E ratio of 79.14 and a PEG ratio of just 0.4, the company showcases a promising valuation relative to its near-term earnings growth potential. Moreover, the revenue growth over the last twelve months has been an impressive 23.28%, indicating a strong upward trajectory for the company.
InvestingPro Tips highlight that Block is expected to see net income growth this year and has had 25 analysts revise their earnings upwards for the upcoming period. Despite trading at a high earnings multiple, Block remains a prominent player in the Financial Services industry with liquid assets surpassing short-term obligations.
For readers looking to delve further into Block's potential and strategic financial insights, there are an additional 11 InvestingPro Tips available, which can be accessed with a special offer. Use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro.
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