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Block (SQ) is scheduled to report results for its third fiscal quarter after the market close on November 2, with a conference call scheduled for 5:00 pm EDT. What to watch for:
ON THE SIDELINES: Wells Fargo initiated coverage of Block on Monday with an Equal Weight rating and $45 price target. The firm struggles to find “sufficient evidence to call for consistent beats and raises” despite what it views as Block’s “impressive record of innovation.” Consistently beating numbers is “the clearest path for upside to shares,” but investors are “justifiably skeptical” given limited historical evidence of operating leverage, heightened competitive dynamics for the Seller ecosystem, and the view that sustaining Cash App growth “requires an ongoing conveyor belt of investments,” the firm added.
BUY BLOCK: Late last month, Block was assumed at UBS with a Buy rating and $70 price target. UBS believes software-led distribution is increasingly becoming the channel required to participate in the 70% of industry revenues sourced via underlying small businesses, of which the vast majority could ultimately be running through a software platform longer-term. Those best positioned will either be owners of the software or the preferred partners to these software companies in embedding and monetization-enhancing financial services across multiple channels, products, and geographies, the firm told investors in a research note. UBS also expects continued high single-digit to low double-digit compounding medium-term revenue growth for Visa (V) and Mastercard (MA).
STRONG FUNDAMENTALS: Last week, Deutsche Bank lowered the firm’s price target on Block to $75 from $95, while keeping a Buy rating on the shares. The firm says the shares have been hurt by short term volume worries and poor communication on the direction of the business. However, Block continues to show strong fundamentals across its business segments, is passing through recent EBITDA beats, and making “baby steps forward with regard to its guidance philosophy,” Deutsche told investors in a research note. The firm believes the company should give mid-term gross profit expectations for Square and Cash App as well as a more specific timeline around its “Rule of 40” target in order to give investors more confidence on the horizon. Deutsche remains bullish on Block’s long-term outlook but cut the price target to reflect the drop in peer group valuations.Truist also lowered the firm’s price target on Block to $70 from $85, keeping a Buy rating on the shares as part of a broader research note previewing Q3 earnings in FinTech. Many of the firm’s covered names are slumping, and while broadly constructive, Q3 results may not be catalysts for some of its “favorite laggard ideas”, the analyst tells investors in a research note. Truist also believes that the challenges, including competition, commoditization, price pressure, and investments needed to move up-market and into more complex SMBs will not quickly abate. The firm adds, however, that the fears around the demise of the Square ecosystem are materially overstated, even though it sees Block struggling to transition its sales organization to address more complex and vertical market merchants in a competitive market requiring more sophisticated field sales and support.More By This Author:What Wall Street Experts Are Saying About Apple Ahead Of Earnings Here Is What Wall St. Experts Are Saying About These EV Names Ahead Of Results Here Is What Wall Street Is Saying About Qualcomm Ahead Of Earnings