By Mackenzie Tatananni

Shares of Block plummeted last week in response to disappointing fourth- quarter results, but one analyst now sees a buying opportunity.

BMO Capital Markets analyst Rufus Hone upgraded Block to Outperform from Market Perform. While he cut his target for the stock price to $89 from $100, that still leaves abundant room for potential gains.

Near midday on Monday, the stock was down 4% at $65.59. It fell 18% on Friday, the worst same-day percentage drop since early in the pandemic, on March 16, 2020. It was the third-worst decline on record, according to Dow Jones Market Data.

Hone says that the decline creates an "attractive entry point" to buy the stock and that the balance of risks and potential rewards is now more favorable. While management's financial forecasts for the first quarter of the year were soft, he said, the company's valuation multiple -- the stock price relative to earnings -- could rise in the second half.

Management's expectations for growth in gross profit at both Block's Square and Cash App segments now "appear more achievable," Hone wrote. Gross profit and gross payment volume at Square, the point-of-sale system, stand to benefit from product innovations, better distribution, and a "refreshed sales strategy," Hone said.

Square's fourth-quarter gross payment volume, the total amount of transactions processed, came in slightly better than expected, marking a "bright spot," Hone said.

At the same time, he said he expects continued robust growth in average revenue per user for Block's Cash App business, Strong contributions from initiatives like Cash App Borrow, Cash App Pay, and the integration of Afterpay onto the Cash App Card will drive the gains, he said.

The analyst also noted that sentiment appeared more balanced than it had in the past. "Amongst our coverage, XYZ had been one of the more overweight/crowded longs, with investors largely focused on positives," Hone wrote.

Wall Street appears cautiously optimistic for now. Of 44 analysts polled by FactSet, 33 rate the stock at Buy or equivalent, eight have it at Hold, and three at Sell.

Write to Mackenzie Tatananni at mackenzie.tatananni@barrons.com

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February 24, 2025 13:13 ET (18:13 GMT)

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