Analyst: It's Time to Dock Block Stock

There's room for more analyst optimism to unwind

Deputy Editor
Sep 6, 2023 at 9:13 AM
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UBS downgraded Block Inc (NYSE:SQ), operator of Square and Cash App, to "neutral" from "buy" and slashed its price target from $102 to $65. In response, Block stock is 2.3% lower before the opening bell.

The Wall Street analyst cited growth deceleration and its impact on price as a reason for the bear note. Per UBS, "In 2H/23E and 2024E, Block gross profit growth will likely slow given softening of consumer discretionary spending, a slowdown in Cash App monthly active user growth and moderation of Cash App monetization rates."

There's still room for analyst sentiment to shift. Coming into today, 20 of 30 covering brokerages rated SQ a "strong buy" or "buy." More price-target cuts could roll in soon, too, considering the average 12-month target price of $83.94 is a 42.9% premium to Tuesday's close at $58.74.

Options traders are already pessimistic. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), Block stock's 50-day put/call volume ratio of 1.02 ranks in the highest possible percentile of its 12-month readings.

Options are affordably priced right now, according to SQ's Schaeffer's Volatility Index (SVI) of 35% that ranks higher than just 2% of annual reading. The implication here is that options traders are pricing in low volatility expectations -- a boon for premium buyers.

Block stock just staged a bounce from its 2023 lows around the $54 region to reclaim support from its now ascending 10-day moving average. However, this trendline could move back overhead should today's premarket losses hold. SQ is down 11.4% in the past 12 months.

 

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