UBS downgrades this digital payments stock, slashes price target

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UBS says that there is limited upside for Block, as the softer consumer discretionary spending outlook could slow down the gross profit growth of Square and Cash App’s parent company. Analyst Rayna Kumar downgraded the shares from buy to neutral. She also reduced her price target from $102 to $65. The new price target represents a 10.4% increase from the Tuesday closing share price. In a note published on Wednesday, Kumar stated that “Without catalysts in view, and with a re-acceleration in gross profit growth unlikely,” we see limited potential for upside. Cash App’s analyst says that the monthly active users are declining and monetization is slowing down. UBS predicts that restaurant sales will slow to 5% by 2024, down from 8%. The bank also predicted that non-grocery retailers will see a decline in sales. The analyst did add that Block shares were trading at a “low EV/Gross profit multiple of 4x” which is a 5 year low. This suggests the market has priced in largely lowered gross profits. According to Kumar, the intensifying competition also drives down pricing for Square’s businesses, which contributes to a deceleration in gross profit growth. The shares fell by nearly 3% in the premarket on Wednesday. The stock has fallen 6.5% since 2023. Michael Bloom, CNBC’s Michael Bloom, contributed to this report.