A tumultuous two months at Block has caused Citigroup to sour on the payments company.
Block stock (ticker: SQ) has tumbled nearly 45% since early August as the company has weathered a series of setbacks, including a 48-hour outage on its Square payments app, and the sudden departure of Square’s CEO weeks later.?
Before that drop, Block stock had been one of Citigroup’s top picks with analysts at the bank believing that Block has attractive opportunities to develop new products while strengthening existing ones. Block stock may still have long-term promise, but the analysts have had to cut their expectations in the near term as the stock is unlikely to post a meaningful recovery by year-end
“We remove the stock as one of our top picks, now recognizing upside versus the fiscal year 2023 earnings before interest, taxes, depreciation, and amortization outlook for $1.5 billion is likely off the table and the stock is likely to remain rangebound in the second half of 2023,” the analysts wrote.
Even with the less-enthusiastic outlook, the Citigroup team still has a Buy rating on Block stock, saying that the recent plunge in the stock price was an “overshot.” The team lowered its price target on Block shares to $65 from $90. The new price target represents more than 50% upside from a recent price of $41.41.
“We maintain our Buy rating, believing execution can rebound,” the analysts wrote. “For us, Block’s continued ecosystem integration and product development opportunities (both TAM expanders) are too big to ignore over the next 12 months.”
That said, the analysts say it will take some time for Block to repair its recent issues, even though they believe the stock is bottoming. With the $65 price target, Citigroup is anticipating a 25 times to 30 times multiple of enterprise value/Ebitda, down from a 35 times to 40 times EV/Ebitda multiple.
Block stock is down 0.9% in Wednesday trading while the S&P 500 is up 0.4%.
Write to Carleton English at [email protected]