These are not the best of times for Block (SQ) investors. Shares have underperformed against the broader markets this year, hampered by lower gross payment volumes and decelerating gross profit growth. The result is a stock that now sits at a 52-week low, having shed 23% on a year-to-date basis.
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The latest news to come out of Block’s HQ has done little to boost confidence. On Monday, after the market’s close, the digital payments leader announced that the Square division’s CEO Alyssa Henry will be leaving her post on October 2nd. The position will be temporarily filled by co-founder Jack Dorsey, who currently is the head of Block and serves as its chairman.
With shares trending lower in the aftermath of the announcement, BTIG analyst Lance Jessurun is hardly shocked by the tepid response. “We believe Alyssa was viewed favorably by investors, and the departure after only six months as named CEO (but nine years as acting) is surprising,” the analyst said. “While we wouldn’t consider oversight by Jack Dorsey to be a negative, the reaction isn’t surprising given the sentiment surrounding the name.”
According to Block, Dorsey has devoted increased attention to Square’s operations in recent months and will now take charge of shaping the strategy and direction of the division.
As for the long-term outlook for Block, Jessurun thinks that while gross profit growth may face challenges in the short term due to reduced discretionary spending, he sees the company eventually benefiting from the anticipated resurgence in discretionary spending, the continued transition towards cashless payments, and the recovery of sub-prime consumers as inflation eases. The analyst also expects Cash App’s reach within the sub-prime market to keep expanding.
“Ultimately,” Jessurun summed up, “user monetization and customer engagement should generate stronger revenue and gross profit than peers, and in conjunction with strong fee-based services growth should grant SQ a premium multiple to peers, but we expect this to occur over the long term.”
For now, however, Jessurun’s rating stays a Neutral, without a fixed price target in mind. (To watch Jessurun’s track record, click here)
On the Street, 5 other analysts join Jessurun on the sidelines, but with an additional 22 positive reviews, the stock claims a Strong Buy consensus rating. Going by the $85.96 average target, a year from now, investors will be pocketing returns of 72%. (See Block stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
