Block: Same Square Problems
- Block rallied 26% following strong Q4'21 earnings.
- The big rally is nearly equal to the returns any investors should expect for the full year.
- The stock is already expensive trading back at 12x adjusted revenue targets while the BNPL product introduces additional lending risks.
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Update - Feb. 28
These analysts won't quit over paying. BMO Capital wants people to pay 60x '23 earnings for $SQ.-Block (NYSE:SQ) stock is gaining 1.9% in early trading on Monday after BMO Capital Markets analyst James Fotheringham upgraded Block (SQ) on his more-bullish-than-the-Street expectations for Cash App user growth and product monetization and Afterpay acquisition accretion.-Fotheringham considers Block's (SQ) investor day on May 18 as a potential positive catalyst. "We look forward to guidance regarding synergies expected from SQ's recently completed acquisition of Afterpay, and the benefits of connecting SQ's merchant-facing Square business to its consumer-facing Cash App business via BNPL (Buy Now, Pay Later)."-His $159 price target implies a 33% upside to Friday's close of $119.82. 60x target multiple is derived from historical industry-wide relationship between organic revenue growth potential and value with BMO's +32% estimate for Block's (SQ) out-year revenue growth. "SQ's forward P/E recently de-rated by 70%: from 140x a year ago to 45x today."-The analyst's 2023 EPS estimate of $2.66 is 9% above Street consensus.