BMO lifts Block to Outperform, sees multiple rerating catalysts ahead

Investing.com -- BMO Capital Markets upgraded Block to Outperform and raised its price target to $101 in a note Thursday, telling investors that its earlier concerns about investor positioning and a lack of rerating catalysts have eased.

Analyst Andrew Bauch noted that Block’s multiple has been range-bound at 15 to 18 times EPS since its February reduction in force. That is despite faster product and go-to-market velocity, the long-awaited acceleration in Square gross payment volume, and a reset of the company’s terminal margin.

“We see both of those reservations alleviated today, given a healthy amount of investor debate, and multiple compelling opportunities on the horizon,” Bauch wrote.

On Cash App Borrow, BMO expects growth to slow due to tougher comparisons and the ongoing shift from four-week to six-week loans.

However, the firm estimates the six-week structure generates about 70% more variable profit per loan. If management recalibrates limits through 2027, BMO sees a $180 million to $400 million gross profit tailwind next year.

The analyst also pointed to Neighborhoods as a potential catalyst for stagnant monthly active users, and to Cash App Score as another long-term monetization opportunity.

“2Q offered the cleanest Square quarter in nearly two years, with GPV and GP accelerating in unison,” Bauch said. He expects that momentum to continue into the third quarter and 2027.

BMO acknowledged that credit losses should rise as Borrow scales, but it views this as manageable. The firm models third-quarter transaction and loan losses of $569 million, compared with the Street’s $559 million.

“Overall, we believe the balance of growth visibility, margins and tangible product upgrades has leveled-up the Block story, and we see multiple expansion driving upside to shares,” the analyst said.

Original Article

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