Analyst Says Block's Low-Trading Multiples Represents a Compelling Buying Opportunity

Citigroup analyst Peter Christiansen maintained Block Inc (NYSE: SQ) with a Buy and lowered the price target from $135 to $90.
Christiansen believes that SQ is a compelling buy opportunity, with EV/GP and EBITDA at their lowest levels ever.
Efficiency gains, tighter discretionary spend, and slower hiring will all be key to 2023. These have already contributed to a 20% – 25% decrease in expenses in the last two quarters.
Additionally, with 23%-24% gross profit growth expectations, the analyst estimate Block’s EBITDA margin could be near ~20% in 2023, up 500 bps YoY.
The bulk of these gains will likely materialize in 2H’23 and 1H’24, leading the analyst 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), the analyst believes the stock is pricing deeper cyclicality.
With normalizing earnings power now in place, the analyst shifted his valuation framework to a forward EV/EBITDA multiple of 35x-40x. This is consistent with both pre-pandemic norms as well as expectations for a 40% EBITDA3YR CAGR.
Price Action The SQ shares traded at $62.78, up 2.23% since Wednesday’s last check.

Date	Firm	Take Action	From	To
Mar 2022	Mizuho	Keep it up		Buy
February 2022	DA Davidson	Keep it up		Buy
February 2022	BMO Capital	Upgrades	Market Performance	Outperform

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