Citi cuts estimates on Block; Removes stock from ‘top picks’

Citi reiterated their Buy rating on Block Inc (NYSE:) but cut their 12-month price target on the stock to $65.00 (from $90.00) and removed the company as one of their “Top Picks”.

Despite recent unfavorable events such as a 48-hour outage, third-party services indicating growth slightly below the consensus, and the unexpected departure of Square’s division head within the last 60 days, Citi holds the opinion that the stock’s decline of approximately 45% over the past two months, approaching its pandemic lows, is an excessive drop.

Aside from some recent difficulties in execution, Citi believes that the company is starting to move past several consecutive quarters of spending on infrastructure and compliance. This could potentially put the company in a position to achieve operating leverage gains at a faster pace.

Analysts wrote in a note, “Given known headwinds/hang-overs, we think the return of momentum will mostly rely on expectations beating nearer term, as well as improving earnings power, before the vision gets its due.”

SQ is expected to report their 3Q results in early November. Citi will be looking for any effects the outage that occurred in mid-August had on the company, while also gaining a clearer understanding of Jack Dorsey’s strategy as he takes on a more prominent role in operating.

Citi also assumes management will discuss potential restructuring efforts as part of its focus on improving operational efficiency.

As a result of the outage-related losses, Citi adjusted their YoY GPV growth projection for the 3Q from approximately 12.4% to 9.5% (with the FY2023 revised from 14.2% to 13.0%). Additionally, Citi made reductions in other Seller revenue projections, considering the possibility of initial attrition.

Shares of SQ are down 0.33% in afternoon trading on Wednesday.