Former high-flying tech stocks have had a rough time navigating 2022’s bear market terrain. A prime example of a pandemic-era winner that has lost its luster, Block (SQ) has been amongst the victims. With concerns around its path to further growth pitted against a weak economic backdrop, the shares have shed 62% since the turn of the year.
That said, assessing the digital payments specialist’s prospects, Deutsche Bank’s Bryan Keane sees plenty to be upbeat about.
“Even as market volatility and concerns surrounding macro headwinds have weighed on SQ’s shares, we remain positive on the company’s fundamental trajectory heading into FY23,” the analyst recently said. “In particular, we believe SQ will continue pulling levers to drive margin expansion as the company increases focus on reining in opex while still investing for long-term growth.”
In a sense, Block is trying to have its cake and eat it too, as it attempts to straddle the growth and profitability divide. With the company recently saying it intends to cut back on hiring and reduce ROI marketing spend next year, Keane has faith in its ability to maintain its cohort/unit economic discipline and that it will be able to “drive margin leverage” while also making long-term investments.
Furthermore, as new products and services “continue to drive monetization rates higher,” Keane remains “highly constructive” on prized asset the Cash App and believes it has the potential to beat consensus estimates. The analyst thinks Cash App’s FY23 gross profit (ex-Afterpay) could potentially increase by 25 to 30% year-over-year (vs. his “core” estimate of around 20%) because of the economic factors that are likely to hold up well in a downturn, such as growing direct deposit penetration and increasing debit card usage.
So, how does this all translate to investors? Keane rates the shares as Buy while his $95 price target provides room for 12-month growth of 55%. (To watch Keane’s track record, click here)
Over the past 3 months, this stock has garnered 28 analyst reviews, which breakdown into 21 Buys, 6 Holds and 1 Sell, making the consensus view here a Moderate Buy. Going by the $86.31 average target, investors will be sitting on returns of ~41% a year from now. (See Block stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
