Evercore ISI Upgrades Block Inc. (XYZ) to Outperform

Evercore ISI analyst Adam Frisch upgraded Block Inc. (NYSE: XYZ) from In Line to Outperform with a price target of $75.00 (from $58.00).

The analyst comments "We are upgrading shares to Outperform and raising our estimates and PT to $75 (from $58), implying ~21% upside. Reasons for the upgrade: 1. Cash App lending won’t be as aggressive as we thought coming out of 1Q earnings. We were really worried that more aggressive lending (to new consumers in new states w/ higher limits) would be used to offset lower 1Q Cash App #’s, but feedback from our industry contacts and multiple company follow-ups enabled a deeper understanding of its growth/risk tolerance balance and made us materially less concerned than we were initially. 2. Low end consumer spending trends are steady and holding up well. Our checks point to relatively steady low-end consumer spending trends, deposit rates, unemployment deposits, etc. – which is consistent with XYZ’s comments a week after the print about an April rebound in Cash App gross profit to 13% yoy growth (vs 7% in March and 10% in 1Q). 3. New product releases at Square bode well for future development efficiency and growth opportunities. New hardware (handheld), software (consolidated app), and “Square Releases” (bi-annual product and roadmap updates) are solid proof points that the recent reorg in product/engineering is paying off and could continue to drive better growth and competitiveness. 4. Sales under Nick Molnar is a key value driver. We spoke with Nick this week and were impressed with his GTM plan and initial execution success in sales channel build-outs (especially tele sales and field personnel). US ISO partnerships are very early. 5. Valuation is still attractive despite the recent bounce (+5% over the past week), as the stock is still down 27% ytd vs Nasdaq down <1% and trading at a discount to recent EV to revs and EBITDA multiples as well as compared to the broader comp group. Near-term risks/catalysts: 1. Cash App Borrow (CAB) losses and the related balance sheet exposure. To be clear, we are still concerned about increased loan exposure in new markets as that almost always brings higher initial losses that fade over time, just not as much as we were initially. 2. Direct deposit and/or “like” trends at CA – THE key metric to show future monetization potential but we question whether XYZ’s definition is too narrow to accurately depict the progress here. 3. Macro headlines – XYZ is more exposed due to low-income consumers & micro-SMB merchants but the most severe tariffrelated scenarios appear to be somewhat mitigated in recent weeks."

For an analyst ratings summary and ratings history on Block Inc. click here. For more ratings news on Block Inc. click here.

Shares of Block Inc. closed at $61.76 yesterday.

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