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Citi analysts cut the firm’s price target on Block (NYSE:SQ) to $90 from $135, maintaining a Buy rating in a note to clients Wednesday.
The analysts told investors in a note that there is a soft landing buying opportunity. “We believe SQ, now at all-time lows on an EV/GP and EV/EBITDA basis, represents a compelling buying opportunity,” wrote analysts.
They listed the key to 2023 being efficiency gains, tighter discretionary spending, and slower hiring, “which has already resulted in 20%-25% expense reduction in the last two quarters.”
Alongside expectations for 23% to 24% gross profit growth, Citi estimates Block’s EBITDA margin could be near 20% in 2023, up 500bps year-over-year.
“The bulk of these gains are expected to materialize in 2H’23 / 1H’24, though lead us to model a 40% 3-year EBITDA CAGR in a “soft landing” scenario. Against the stock’s EV/FYE’23 EBITDA of ~30x (consensus estimates), we believe the stock is pricing deeper cyclicality. Now with normalizing earnings power, we shift our valuation framework to a forward EV/EBITDA multiple range of 35x-40x, resulting in a $90 TP, commensurate with both pre-pandemic norms and our expectations for a ~40% EBITDA 3YR CAGR,” the analysts concluded.
Block shares are up over 2% Wednesday.
