What happened
Shares of Block (SQ +0.40%) surged higher Monday, jumping as much as 10.1%. As of 12:15 p.m. ET, the stock was still up 8.6%.
The catalyst that sent the fintech specialist higher was an optimistic outlook by a Wall Street analyst.
NYSE: SQ
Key Data Points
So what
BMO Capital analyst James Fotheringham issued positive commentary and upgraded Block stock to outperform (buy) from market perform (hold), while maintaining a price target of $159. That suggests potential upside for investors of roughly 33% over the coming year.
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Square stock had shed as much as 61% of its value over the past 12 months, and Fotheringham believes the selling is simply overdone.
Additionally, because of uncertainty concerning the company's growth prospects, analysts had lowered Square's earnings multiple, which has come down 70% over the course of the past year, which Fotheringham views as entirely too pessimistic.
The analyst now believes that given its recent blockbuster fourth-quarter financial results, Block will be rerated to a roughly 60 times price-to-earnings ratio, based on analysts' consensus for 2023 estimates, particularly given the company's 32% organic revenue growth potential.
Now what
He's not the only analyst positing on Block's future prospects this morning.
DA Davidson analyst Christopher Brendler maintained a buy rating on Block, while lowering his firm's price target on Block to $175 from $275 given the current market conditions, which still represents potential gains for investors of 46% over the coming 12 months.
The analyst noted that the difficult comps resulting for last year's stimulus payment will ease in the second quarter. Block's outlook was also better than expected, and the company could get a boost from the current tax season. Finally, with the integration of buy now, pay later specialist Afterpay well underway, Block's stock is "suddenly much more attractive."
These analysts may be on to something. On the conference call to discuss its Q4 results, management said it currently sees gross profit up 33% year over year in January and February for the fintech company, excluding any impact from Afterpay.
Given all the potential catalysts, investors are becoming much more optimistic about Block's prospects going forward.
