A cool-down in discretionary spending could weigh on payments company
Block,
UBS warns.
UBS analysts downgraded shares of Block (ticker: SQ) to Neutral from Buy and lowered their price target to $65 from $102 in a Wednesday report.
Shares of Block fell 1.2% to $58.05 in recent Wednesday trading.
There are a few reasons for the downgrade.
First, for the second half of 2023 and going into 2024, gross profit growth at Block will likely curb as consumer discretionary spending ticks down, the UBS team said. The analysts also expect that Cash App—a peer-to-peer payment service—will see a slowdown in monthly active user growth and a moderation of monetization rates.
Second, though the company is making strides on profitability and continually beats quarterly estimates for adjusted earnings before interest, tax, depreciation, and amortization, investors have trained their focus on gross profit growth potential, analysts explained. They cited an example of how shares fell 14% on Aug. 4, following better-than-expected second-quarter adjusted earnings and light full-year guidance.
Lastly, the analysts don’t see any factors ahead that could trigger stock gains.
“With a lack of catalysts in sight, and reacceleration of gross profit growth unlikely, we see limited upside potential,” analysts wrote. They add that the market seems to have mostly priced in a possible slowdown in profit growth next year. Block didn’t immediately respond to a request for comment.
A majority of analysts, however, are still bullish on the stock, with 67% rating it at Buy, according to FactSet.
Write to Emily Dattilo at [email protected]
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