Block Stock Set to Rebound Following Post-Earnings Slide

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Shares of Block (ticker: SQ) are poised for a rebound after experiencing a significant drop in price following the release of their earnings report. Despite signs of a profit slowdown last month, analysts remain optimistic about the future prospects of the payments group.

Block saw a drastic 13.6% decline in its stock price on Friday, which followed the earnings report. This payments group is known for operating popular platforms such as Cash App, Square (a point-of-sale system), and Afterpay (a “buy now, pay later” service). However, in Monday’s premarket trading session, the stock showed promising signs of recovery, with a 2% increase. Wall Street is still digesting the numbers from the earnings report, which revealed earnings and sales that exceeded expectations for the second quarter. However, it also highlighted a slowdown in gross profit growth reported for July in the current quarter.

Fortunately, the gloom surrounding Block’s recent selloff appears to be dissipating. The decline in its stock price mirrored the wider market’s dip, as both the S&P 500 and Nasdaq experienced drops following the release of the U.S. jobs report. Additionally, Block’s peer PayPal (PYPL) also faced some weaknesses following its own earnings report.

An analyst from Mizuho, Dan Dolev, pondered on whether there might be a silver lining hidden within Block’s results. Mizuho conducted an analysis and discovered that Block raised its guidance for adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to $1.5 billion for 2023. This positive outlook offers some hope for investors and indicates potential future growth for the company.

In conclusion, while Block faced some challenges in its recent earnings report, there are indications of a bright future ahead. With the raised guidance for 2023, investors can find reassurance in the potential profitability of this payments group.

Analysis Suggests Potential Upside for Block’s EBITDA

Based on a recent analysis of Block’s guidance and actual results, the updated gross profit and operating expenditures guidance indicates a minimum adjusted EBITDA of $1.6 billion. This figure is $100 million or 7% higher than the company’s previous outlook.

While $1.6 billion should serve as the baseline, any additional increase in gross profit could directly impact EBITDA, potentially leading to further upside beyond the $1.6 billion. Dolev, an analyst at Mizuho, which rates Block stock as a Buy, has increased the price target from $85 to $90. Currently, Block’s shares closed at $63.52 on Friday.

Wall Street analysts are also becoming more optimistic about Block, viewing it as a strong choice within the payment and fintech sector despite prevailing challenges.

Macquarie analyst Paul Golding, who rates Block as Outperform with a price target of $100, noted in a Friday report that the U.S. Payments space has experienced a general decrease in valuation during this earnings cycle. This is due to Visa (V) and Mastercard (MA) reporting relatively lower U.S. volumes, as well as PayPal’s recent decline in transaction margins.

However, Golding emphasized that Block is adapting its business strategy to prioritize profitability, making it an attractive choice compared to other large fintech companies. Golding sees potential growth opportunities both in global consumer and enterprise markets, as well as in small and medium-sized businesses.

In conclusion, Block’s analysis suggests a positive outlook for its EBITDA, with potential for further growth. Analysts remain optimistic about its position in the payment and fintech sector, considering its profitability-focused approach and potential expansion opportunities.

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