Morgan Stanley cuts Block rating ahead of Q2 earnings

Investing.com -- Morgan Stanley downgraded Block to Equal-weight from Overweight ahead of its second-quarter results, citing valuation concerns and elevated investor expectations.

“Trading at $76 and above our PT (up 63% since 5/2 trough) we believe valuation is fair at current levels (21x ’26 P/E),” the analysts wrote.

“Most of the anticipated acceleration in Square and Cash App growth is widely built into expectations...note that we view XYZ as a crowded long into the 2Q print,” said the bank.

While the bank still expects “modest acceleration in Square and Cash App GP trends into ’26,” it now prefers Chime over Block in the U.S. fintech space.

“Our preference moves to CHYM… as we’ve seen better execution, more consistent product development, and better attach of primary account relationships among Chime’s customers vs. Cash App,” Morgan Stanley said.

Block’s Cash App is seen as limited by its user base. “Cash App’s demographic profile of low-income customers limits the volume and monetization potential,” the analysts said, adding that Block will likely rely more on “credit expansion… to support durable double-digit Gross Profit growth.”

Morgan Stanley kept its $73 price target on Block, based on a sum-of-the-parts valuation. That includes a 2.5x multiple on 2026 Cash App gross profit and an 11.5x EV/EBITDA multiple on 2026 EBITDA.

Investor sentiment heading into earnings is positive, the note said, with many expecting improvements in both Square and Cash App.

But Morgan Stanley cautioned that high expectations “could lead to a negative reaction post results, as in prior quarters.”

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