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An Evercore ISI analyst downgraded shares of Block (NYSE:SQ) to Underperform from Outperform, pushing the stock over 5% lower in premarket Wednesday trading.
The analyst also cut the price target by over 50% to $55 to reflect lower estimates for 2023 gross profit and adjusted EBITDA. The three key factors behind today’s double downgrade are increasing competition, tightening credit, and macro headwinds.
In particular, the analyst sees “growing headwinds” that will likely hurt Block’s Seller and Buy Now Pay Later (Afterpay) businesses and their profitability.
“While SQ continues to make significant strides in driving strong growth within Cash App through higher engagement and monetization, we expect weakness within Seller and BNPL to pressure total company earnings given a lower margin profile for Cash App,” the analyst said in a client note.
New 2023 estimates are 5% below the Street for gross profit and 10% below for adjusted Ebitda.
“Our analysis suggests SQ’s Seller gross profit growth will decline to 11%, much lower than Consensus’s current estimate of 21%,” the analyst added.
Today’s move lower comes after Block shares fell 7.5% to $69.58. The 2022 low sits at $56.01.
