The narrative around Block (SQ) right now is one that is not unique in the fintech space. A changing macro environment, concerns over decelerating growth, and difficult comps after the pandemic-driven growth are all reasons why sentiment has soured on this name.
But sentiment is not set in stone, at least if there’s enough evidence to support the notion the various concerns can be addressed. Assessing this previous high-flyer’s prospects, Deutsche Bank’s Bryan Keane thinks there are enough reasons to stay optimistic.
Much of the bearish sentiment revolves around the supposedly muted prospects of Block’s pandemic era star, the Cash App, namely sustaining its previous exceptional growth rate. That will evidently not be possible over the near-term, faced with “stimulus-driven comps” marking 1H22.
However, despite the lower growth rates anticipated in the year’s first half, the 5-star analyst believes 30%+ growth remains likely over the mid-term with comps “materially better in 2H22, which should help drive an acceleration in year-over-year growth rates.” Cash Card and Instant Deposits strength should also prove beneficial to the peer-to-peer offering.
Additionally, after clearing the final regulatory hurdle with approval from the Bank of Spain, the Afterpay acquisition should close on Jan 31st. Bringing the buy now, pay later leader under the fold “makes solid strategic sense and combined with synergies, will give a solid lift to Street estimates going forward.”
In FY22, Keane sees these synergies being responsible for as much as ~$164 million of incremental gross profit, which by FY23 should ramp to ~$848 million, given the new addition will “deepen the connection between the Seller and Cash App ecosystems and ultimately increase the velocity of payment flows.”
Further upside in FY22 could come from the continued roll out of new products such as Cash App Pay and Cash App for teens, and over the longer term from new businesses such as the Tidal acquisition and the TBD project – the company’s open developer crypto platform.
That said, while Keane sticks to a Buy rating, due to “lower peer group valuations and more conservative forward estimates,” the price target is slashed from $330 to $210, with the new figure implying shares have room for growth of 73% over the one-year timeframe. (To watch Keane’s track record, click here)
According to the rest of the Street, Keane’s new objective is a conservative one; at $265.43, the average target suggests shares will more than double in the year ahead. All in all, the stock has a Moderate Buy consensus rating, based on 16 Buys vs. 6 Holds. (See Block stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.