Block (XYZ) looks attractive due to its "compelling" valuation and potential for better-than-expected cost savings despite macroeconomic risks, Morgan Stanley said in a note Thursday.

The brokerage believes that current market fears are already factored into Block's stock price, which has fallen 32% year-to-date. It pointed to recent data from payment companies like Shift4 Payments (FOUR), Fiserv (FI), and Global Payments (GPN), as well as payroll provider Paychex (PAYX), indicating stable consumer spending and small-to-medium business health, Morgan Stanley said.

"We think macro risks are well priced in and near-term results can reassure following headcount cuts and consistent spending," the firm said.

Morgan Stanley acknowledged risks including tariffs, Cash App's exposure to low-income consumers, and execution challenges related to product upgrades and new distribution strategies.

Morgan Stanley upgraded its rating on the stock to overweight from equal-weight, and raised the price target to $67 from $65.

Shares of Block were down more than 7% in recent Thursday trading.

Price: 52.62, Change: -5.25, Percent Change: -9.06