Here's Why BofA Believes Block Is Undervalued

Following the massive sell-off in Block Inc.’s SQ shares, the stock reflects the company's Cash App value at merely about $6.5 billion, or around $93 per annual active user, versus PayPal Holdings Inc.’s PYPL $326 and Affirm Holdings Inc.’s AFRM $1,472, according to BofA Securities.

The Block Analyst: Jason Kupferberg upgraded the rating for Block from Neutral to Buy, while reducing the price target from $185 to $221.

The Block Thesis: The company’s stock has been adversely impacted by a broader sell-off in growth stocks, concerns triggered by PayPal’s commentary regarding “weakness in post-stimulus spending among lower-income cohorts,” and Apple Inc.’s AAPL introduction of iPhone-based card acceptance, Kupferberg said in the upgrade note.

“However, we believe the above concerns in aggregate have become over-discounted in shares,” the analyst mentioned. He added that the implied valuation of the Cash App business seems “way too low.”

“We continue to believe in the strategic rationale for acquiring Afterpay, which should fit neatly into SQ’s Seller and Cash App ecosystems. That said, we remain more bullish on the Cash App synergies than in Seller,” Kupferberg wrote.

SQ Price Action: Shares of Block had risen by 6.68% to $116.26 at the time of publication Friday morning.

Photo: Courtesy of Block