According to Bofa, Block's Stock Has More Than 50% Upside After a 'Massive Pullback'

Block Inc. has experienced a substantial decline in its shares since the end of July, but according to Jason Kupferberg, an analyst at BofA Global Research, there's a promising opportunity to consider in the world of payment technology.

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Kupferberg maintains an optimistic outlook on Block's earnings potential. He highlights the fact that the company has made significant progress in reducing its cost structure, but he also sees the potential for even more rapid development in its journey to becoming a "Rule of 40" company, which evaluates a company based on the combined growth of its gross profit and adjusted operating margin.

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Block's growth in operating expenses has been relatively high as a percentage of gross profit when compared to companies like PayPal Holdings Inc. and Intuit Inc. at a similar size and growth stage. According to Kupferberg's analysis, if Block can close this gap even halfway, it could potentially achieve 2024 adjusted earnings before interest, taxes, depreciation, and amortization (Ebitda) that are 20% higher than the current Wall Street projections.

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Furthermore, there's the possibility that investors might receive positive profit-related news before 2024. Kupferberg envisions the potential for Block to raise its 2023 adjusted Ebitda outlook during its third-quarter earnings call in early November due to recent cost-control measures.

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Kupferberg also believes that Block's growth in gross profit should lead to a higher valuation. He suggests that the consensus estimate of a 16-17% gross-profit compound annual growth rate through 2025, even if slightly overestimated, justifies a considerably higher valuation for the company.

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In addition to highlighting the stock's currently undervalued status, Kupferberg recommends that the board intensify its operational oversight. This would ensure that Block continues to maintain its tradition of product innovation while effectively executing its evolving distribution model at Square, a subsidiary of Block.

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Kupferberg has bestowed a buy rating on Block's stock, coupled with a price objective of $71, which represents a more than 50% increase from the current trading levels.

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It's worth noting that Block's shares have experienced a notable decline, losing 43% since closing at $80.53 on July 31. However, there was a 5% gain in the stock's value during Tuesday's trading session, showcasing the potential for a positive turnaround.

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