Shares of Block (SQ 2.65%) slipped on Monday, falling as much as 5.8%. By the end of the trading session, the stock was still down 5.6%.
The catalyst that sent the fintech company lower was a dour analyst outlook regarding macroeconomic conditions, something that's becoming all too common in recent weeks.
Keefe Bruyette analyst Sanjay Sakhrani reduced his price target on Block to $100, down from its previous level at $150, according to The Fly. At the same time, however, the analyst maintained an outperform (buy) rating on the stock. To give that context, the new, lower price target still represents potential gains for investors of 58% from the stock's closing price on Monday.
The analyst has been reading the digital tea leaves and says the second quarter results for most payment processors are "looking to be mixed." Sakhrani cites the "choppy" macroeconomic situation as a backdrop for his prediction. The analyst consequently lowered price targets for a number of companies in the sector, and Block wasn't spared.
Sakhrani's logic is that macro uncertainty will weight on the payments space, and the reduced price targets reflect a lower market multiple and take into account the ongoing headwinds to the economy.
As we close in on earnings season, analysts are scrambling to update their targets in advance of the coming financial results. In fact, Block has been on the receiving end of no less than three price target reductions over the past two weeks alone.
In each case, the Wall Street prognosticators pointed to the shifting monetary picture and the possibility of a recession. Consumers are the backbone of the financial system and any slowdown in spending brought on by a rocky economy will no doubt hit payment processors, weakening their results.
That said, Block has a large number of merchants using its Square payment system, as well as a growing number of consumers that rely on its Cash App digital wallet. Add to this the company's recent acquisition of buy-now, pay-later company Afterpay and what emerges is a strong and resilient network of financial services that will stand the test of time.