Oppenheimer Resumes Block (SQ) at Outperform on Higher Gross Profit/Valuation

Oppenheimer analyst Dominick Gabriele initiated research coverage on Block (NYSE: SQ) with an Outperform rating and a $150.00 per share price target.

The analyst believes the Street consensus is too low for 2023 after shares fell sharply in recent months.

“E-com player focused in integrated payments moving upstream with large runway. Cash App, although scaled in US, has room for cross-sell and international expansion helping to offset some weakness likely NT in average volume per user given debit/ stimulus lapping. Adjusted EBITDA ex. depreciation closer to consensus given $2.3B 2022FY OPEX guidance and losses at Afterpay higher than Street likely modeling. EBITDA 2023FYE could have upside given management flexibility in higher revenue outlook. Crypto a gateway to Cash App likened to P2P vs. actual revenue driver,” Gabriele wrote in a note.

The analyst notes that Block's “gross profit multiple is absolutely tied to PYPL's valuation.” This thesis helps him come up with a $150.00 per share price target.

“SQ's traded between ~1.0–1.5x PYPL's multiple since 2016, why stop now? Given our expectation for PYPL, we believe SQ could revert to 11.82x.”

The analyst also added that he expects consensus EPS to fall post 1Q22 earnings.

Block stock price is down 0.3% in pre-open Wednesday.

By Senad Karaahmetovic

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