Here’s what Wall Street experts are saying about Block ahead of earnings

Block (SQ) is scheduled to report results for its fourth fiscal quarter after the market close on February 22, with a conference call scheduled for 5:00 pm EDT. What to watch for:

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PATHWAY FOR GROWTH: Wells Fargo raised the firm’s price target on Block to $65 from $55 on Wednesday, while keeping an Equal Weight rating on the shares ahead of its Q4 results. The management’s plan to deliver margin expansion and sustain growth is in place, though the degree of conservatism in this plan remains unclear, the firm told investors in a research note. Competitive dynamics have intensified, but there’s a pathway for growth acceleration from Block’s salesforce verticalization efforts and upmarket sellers, Wells added. While the firm’s bias on Block’s shares is positive, it would prefer greater visibility on growth prospects before becoming outright bullish, considering the evidence that growth and margin expansion can both fire simultaneously is limited, Wells says.

Last week, Benchmark initiated coverage of Block with a Buy rating and $89 price target. The company’s improving outlook for profitability reflects significant operating leverage, while its effort to control expenses should enable Block to achieve its goal of a mid-20s adjusted operating margin by 2026, the firm argued in a research note.

ATTRACTIVE POSITION: Late last month, two Wall Street firms turned more bullish on Block, upgrading the stock to Buy-equivalent ratings.

BTIG upgraded Block to Buy from Neutral with an $85 price target, saying it sees the company’s growth opportunities paired with management’s focus on the bottom-line as “presenting an attractive investment opportunity” at current share levels. The core investment thesis is focused on Block’s “attractive position” between the consumer and merchant with its Cash App and Square ecosystems and potential for each segment to become stronger as integrations are built between them, the firm said. BTIG believes the Cash App and Square ecosystems are strong as individual units and have track records of providing value which it expects to continue in 2024.

Meanwhile, Wedbush upgraded Block to Outperform from Neutral with a price target of $90, up from $70, given its increased conviction in Block’s ability to post improving performance in its “weak” merchant segment. In addition to management’s positive decision last quarter to run the company with strict financial discipline and focus on GAAP earnings, accelerating growth in the merchant segment is another important catalyst for share performance, the firm tells investors in a research note.

WHISTLEBLOWER ALLEGATIONS: Federal financial regulators are exploring allegations by two whistleblowers that Cash App, Block’s popular mobile payment platform, and entities providing transaction services to its users performed inadequate due diligence on customers, potentially opening the door to money laundering and other illegal activities, reported NBC News’ Gretchen Morgenson.

Monness Crespi thinks the report of whistleblowers raising concerns about Block’s Cash App is “somewhat concerning,” but argues that Cash App has already faced similar questions on true user counts and duplication stemming from a short report in March of last year. The firm thinks that the know your customer, or KYC, element of onboarding likely makes it so there is a compliant ongoing monitoring process and on the question of ongoing anti-money laundering, or AML, questions the analyst is “hard pressed to believe that, given Cash App’s visibility into customers as part of onboarding/know your customer, the same platform would then shun the AML side of the compliance equation.” Monness maintains a Buy rating and $85 price target on Block shares.