Block's stock could double, analyst says, as an exciting milestone may be in view

By Emily Bary

Barclays sees 'a good likelihood' that Block meets the eligibility requirements for S&P 500 inclusion in the next 18 months

Block Inc. shares could more than double from here, according to Barclays analyst Ramsey El-Assal, as investors seem to be overlooking some potential positive catalysts.

El-Assal thinks Wall Street is too focused on the pressure in Block's (SQ) seller business to fully appreciate the profit opportunities ahead of the overall business.

"Our belief is that [Block's] lack of GAAP profitability has made it somewhat un-investible for many more profit-focused investors," El-Assal wrote. "As an attractive GAAP valuation comes into focus, we see more longer-duration investors revisiting the story."

See also: Block's stock has more than 50% upside after a 'massive pullback,' BofA predicts

In his view, there's "a good likelihood" that Block meets the eligibility requirements for inclusion in the S&P 500 SPX in the next 18 months, which would require the company to show a positive sum of four consecutive quarters of GAAP profits, as well as GAAP profitability in the most recent quarter before potential index inclusion.

"Historically, index inclusion has been a positive catalyst for a stock," El-Assal noted.

Block's management has been taking profitability more seriously, and El-Assal is upbeat about the company's ability to expand margins. "Drivers of margin expansion include reductions in hiring/headcount, overhead expenses, and improved partnership economics" from the company's arrangement with Marqeta Inc. (MQ), he said.

He looked at the company's job-posting data and determined that there was a "further deceleration in hiring metrics" during the latest quarter. He said he wouldn't be surprised to see Block target an even slower rate of headcount growth than its current target of less than 10% growth.

El-Assal maintained an overweight rating and $95 target price on the stock, which was changing hands midday Thursday at $45.88.

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Not everyone is so optimistic. Seaport Research Partners analyst Jeff Cantwell initiated coverage of the shares Thursday with a neutral rating, saying that Block's "current valuation, to us, reflects that the market's point of view is the company has squandered its leadership position in fintech."

-Emily Bary

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10-12-23 1404ET

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