Block stock was rebound on Monday from its post-earnings share price slide. Analysts continue to see upside for the payments group despite signs of a profit slowdown last month.
Shares in Block plunged 13.6% last Friday after the payments group—which operates mobile payments platform Cash App, point-of-sale system Square, and “buy now, play later” service Afterpay—reported earnings. The stock was up 0.77% on Monday as Wall Street continued to digest the numbers, which included second-quarter earnings and sales ahead of expectations, but slowing gross profit growth reported for July in the current quarter.
But the gloom is clearing from Block’s late-in-the-week selloff, which matched declines in the wider stock market as the S&P 500 and Nasdaq fell after the U.S. jobs report and peer PayPal had a run of weakness amid its own earnings.
“Is there a silver lining?” from Block’s results, asked Mizuho analyst Dan Dolev in a Monday note. There seems to be one following Mizuho’s analysis of Block’s raised guidance of $1.5 billion in adjusted earnings before interest, taxes depreciation, and amortization (EBITDA) for 2023.
Based on an analysis of Block’s guidance versus actual results over the past several quarters, the latest updated gross profit and operating expenditures guidance combined implies a floor for adjusted EBITDA of $1.6 billion. That’s $100 million or 7% ahead of the company’s most recent outlook.
“Although $1.6 billion should be the floor, any further upside from better-than-expected gross profit should flow through directly to EBITDA, which suggests potential further upside to the $1.6 billion,” Dolev said. Mizuho, which rates Block stock at Buy, raised its price target to $90 from $85. The shares closed Friday at $63.52.
Others on Wall Street are turning more upbeat, too, seeing Block as continuing to be a strong pick among payment and fintech companies as the sector faces headwinds.
“The U.S. Payments space has broadly de-rated through this earnings cycle as both Visa (V) and Mastercard (MA) reported relatively subdued U.S. volumes, and PayPal earlier this week reported a step down in transaction margins,” Macquarie analyst Paul Golding—rating Block at Outperform with a $100 price target—wrote in a Friday note.
“The macro environment is tightening … but Block is still pivoting as a profitability-focused business,” Golding added. “Among large fintechs, it continues to be our top pick given the whitespace left to work through across both the global consumer and enterprise and [small and medium-sized business] merchants.”
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