Bernstein has spotlighted Block Inc. (NYSE: SQ) as its “new best idea” for 2025, raising the stock’s price target from $90 to $120 while maintaining an “Outperform” rating.
This bullish forecast stems from multiple catalysts, including accelerated growth in Square’s Gross Payment Volume (GPV), robust 30% EBITDA gains from operational efficiencies, easing regulatory pressures, and the potential for inclusion in the S&P 500 Index.
Currently trading at $95.87, Block has experienced a remarkable 24% gain over the past month, with its year-to-date performance up by 32%.
Its valuation remains appealing, with 16% of its market capitalization held in cash, providing ample flexibility for growth initiatives. Following Bernstein’s announcement, the stock climbed 1.7% in premarket trading on Monday. Bernstein also projects that Block could generate $3.0 billion to $3.5 billion in cash flow by the end of 2025.
Strong black friday-cyber Monday performance supports growth outlook
Block’s recent success during the Black Friday and Cyber Monday weekend underscores its growth potential.
Sellers leveraging Block’s ecosystem of commerce tools facilitated a record-breaking 144 million transactions globally, marking a 17% increase year-over-year. Online and in-store sales surged by 21% and 17%, respectively, driven by high demand for mega-discount deals during the shopping weekend.
The integration of Afterpay with Google Pay ahead of the holiday season is another key growth driver. This move allows customers to split purchases into installments directly through Google Pay, expanding Afterpay’s reach and bolstering Block’s revenues.
“Afterpay’s integration with Google Pay comes at the perfect time as next-gen shoppers are fueling mainstream use of BNPL, mobile commerce, and digital wallet use,” said Tanuj Parikh, Head of Global Partnerships, Afterpay, and Cash App.
The rollout of Afterpay on Cash App Cards is expected to transform the cards into a viable alternative to traditional credit cards, further enhancing user adoption and financial performance.
Financial highlights and growth outlook
Block’s Q3 2024 earnings showcased its operational strength, with total net revenue climbing 6.4% year-over-year to 5.98 billion. Excluding Bitcoin (BTC) revenue, the topline grew by 11%, fueled by a 20% increase in subscription and services revenue. Adjusted EPS surged 76% to $0.88, driven by improved cost management and a 370-basis-point expansion in net profit margins.
The company’s robust balance sheet, which includes $2.7 billion in net cash and a $775 million revolving credit facility, positions Block to pursue strategic acquisitions.
Despite its strengths, Block trades at a forward P/E ratio of just 22.89 and boasts a PEG ratio of 0.58, highlighting its growth potential at a reasonable valuation, according to StockAnalysis.
Analyst upgrades reflect confidence
Amid this backdrop, analysts remain bullish on Block. BTIG for instance raised its price target for Block to $110 from $90, maintaining a Buy rating and reaffirming it as the top large-cap payments pick for 2025 due to its unique growth drivers beyond customer acquisition and transaction volume.
Goldman Sachs also raised its price target for Block to $102 from $87, maintaining a Buy rating. The firm highlights fintech’s growth potential amid a stronger economy, inflation, and favorable policy changes, with payment technology stocks gaining 18% on average since the election.
However, Goldman advises caution due to valuation and limited visibility to an acceleration in fundamentals, favoring a selective approach to investments.
That being said, Block’s ability to sustain growth through strategic initiatives and operational efficiency makes it a compelling pick for 2025. Despite some analysts noting near-term downside risks, Block’s long-term potential remains intact, supported by strong fundamentals and innovative product rollouts.
Featured image via Shutterstock
