Oppenheimer sees 32% upside in Block shares, upgrades to Outperform

Investing.com -- Oppenheimer analysts hiked their Block Inc (NYSE:SQ ) stock rating to Outperform from Perform and set a new price target of $115, suggesting a 32% upside potential from the Wednesday closing price.

The upgrade decision is rooted in several key factors, including expected accelerated growth in Square's Gross Payment Volume (GPV), Block's ability to meet its financial efficiency targets ahead of schedule, and the potential gross profit from its Bitcoin mining strategy.

According to Oppenheimer, Block's recent investments in product development and sales initiatives are projected to drive Square GPV growth.

For 2025, the firm forecasts a GPV increase to 12%, surpassing both the 2024 estimate of approximately 9% and the consensus estimate of 10%.

These growth expectations are attributed to Block's enhanced product offerings, increased marketing efforts with strong returns on investment, a revised go-to-market strategy, and resilient consumer spending.

Block is also anticipated to achieve its "Rule of 40" target by 2025, one year earlier than planned. This financial benchmark combines gross profit growth and adjusted operating income margin, with Oppenheimer expecting a significant margin expansion of 500 or more basis points (bps) next year.

“Block continues to keep a 12,000-employee cap in place, focuses on reduction of corporate overhead expenses and looks for structural cost improvements though its partner ecosystem,” Oppenheimer analysts noted.

“Given we estimate 16% gross profit growth from both Square and Cash App, and assume a 24% adjusted operating income margin, we forecast Block will achieve its Rule of 40 target in 2025, one year ahead of schedule.”

The firm also highlights Block's potential in the Bitcoin space, fueled by the enthusiasm of Jack Dorsey, Block's CEO, and a pro-crypto administration.

Block's partnership with Core Scientific to deploy new ASIC mining chips is seen as a step towards becoming a leader in ASIC mining, akin to Nvidia (NASDAQ:NVDA )'s position in its field. This venture, along with possible further integration of Bitcoin operations into Block's Cash App and Square ecosystems, could provide additional gross profit growth in 2025.

Over the next two years, Oppenheimer expects Block's Cash App to continue experiencing mid-teens gross profit growth.

This outlook is supported by the increasing adoption of Block's financial services, including the Cash App Card and growth in paycheck deposit monthly actives.

Source: Investing.com

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