Block Inc (NYSE:SQ) is not expected to deliver any major surprises when it hands down its second quarter earnings on August 1, according to analysts at Bank of America.
Analysts expect the fintech firm, the parent of Square and Cash App, to report earnings per share of $0.75 on revenue of $6.27 billion.
“We think consensus Q2 estimates are well calibrated,” the bank's analysts wrote in a note to clients.
A beat on adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) and adjusted operating income (AOI) is plausible given Block’s ongoing expense discipline, they added.
They see Block again raising its profitability outlook and expect its 2024 gross profit growth guide of 17%-plus will likely be reiterated.
“Block’s 2024 outlook for "Rule of 32" (gross profit growth plus AOI margin) could also be raised modestly (targeting "Rule of 40" by 2026),” they wrote.
They see the gradual re-acceleration in Square’s gross payments volume (GPV) growth, especially in the US, as the most important driver of the stock.
“This would help allay concerns regarding competition and affirm CEO [Jack] Dorsey's strategy, while lending support to out-year Square forecasts,” they wrote.
“We/Street are modeling 9% Square GPV growth for Q2, steady versus Q1, but believe investors are braced for a modest miss on this metric based on high-frequency data.”
The analysts believe Square is currently undervalued and its business model underappreciated, awarding it a ‘Buy’ rating and $82 price target.
“Historically, gross profit was the only metric Block could be reasonably valued on, but Block’s increased focus on profitability now enables investors to value the stock on AOI and/or GAAP EPS, which should help put a floor in shares,” they wrote.
However, they noted that: “Given shares are up 15% in the last month, this could limit the potential for 2Q to be a positive catalyst.”
Block shares traded hands at about $68 on Thursday afternoon.