Jack Dorsey's Block Eyes Over 39% Upside: BofA Says US-Centric Re-Acceleration Story Will Drive The Stock

Jack Dorsey‘s popular Cash App digital wallet developer Block Inc SQ is expected to deliver a strong fourth quarter given its business’s general resilience and operational excellence discipline, says BofA Securities.

The BofA Analyst: Analyst, Jason Kupferberg, maintained its ‘buy’ rating with a price objective of $115 apiece, representing a 39.62% increase from its current price levels.

The Analyst Takeaways: Identifying its top-line growth and profitability along with its potential to contribute to the U.S.-centric re-acceleration story to the best large-caps companies, BofA analyst, Kupferberg, says it is “underappreciated” by the market.

BofA remains bullish on its dual-sided ecosystem which consists of Square, which provides technology solutions for hardware and software, and the payment application Cash App. The analyst adds that Block doesn’t have the “legacy tech” overhang as compared to some of its peers.

The Rule of 40, which is a financial metric that assesses the health of a Software-as-a-Service company is expected to be achieved by 2026, reflecting enhanced profitability focus. The rule states that the company’s gross profit growth and adjusted operating income margin should add up to at least 40%.

Expected to report its fourth-quarter earnings on Feb. 2, BofA thinks the company’s consensus estimates are well calibrated.

Gross payment volume (GPV), an important metric to measure the payment company’s performance, is expected to grow by 8.5% to 9.1% in the fourth quarter according to BofA and consensus street estimates.

“However, given shares have outperformed since Q3 earnings, this could limit the potential for Q4 to be a significant positive catalyst,” stated the note, dated Jan. 15.

For the first quarter of the upcoming fiscal, BofA sees some GPV headwinds from the Los Angeles wildfires and likely competition from the longer February in 2024, considering the leap year.

Additionally, the company has agreed to pay $80 million to settle allegations that violated anti-money laundering laws. This could impact the first quarter as well. According to a press release, regulators in 48 states found that it failed to adequately verify customers, report suspicious activity, and implement proper controls for high-risk accounts.

Price Action: Block's stock closed at $84.79 on Wednesday, reflecting a 2.88% increase. In after-hours trading, the stock rose by 1.07%. Over the past year, Block has experienced a notable growth of 30.13%.

The stock's 52-week range is between $99.26 and $55. With a market capitalization of $46,134 million, Block’s forward price-to-earnings ratio of 18.248 is lower as compared to the industry average of 81.740 and it has a relative strength index of 44.89, according to data from Benzinga Pro.

Block has a consensus price target of $91.57, according to the 46 analysts tracked by Benzinga. The high target is $120, and the low is $46. Recent ratings by Citigroup, Keefe, Bruyette & Woods, and Raymond James suggest a $107.67 target, implying a 25.63% upside.