Shares of Block Inc. (Square parent) are heading higher Monday, building on Friday’s record rally, after an analyst at BMO Capital Markets said he saw further upside for the payment-technology stock.
BMO Capital Markets analyst James Fotheringham upgraded Block shares SQ, -0.27% to outperform from market perform late Sunday, writing that their valuation looks attractive following a sharp drop in multiples across the payments industry.
While Block shares rocketed 26% in Friday’s session to log their largest single-day percentage gain on record, and up about 5% further in Monday trading, the stock is off 55% from its August closing high. The company’s forward price-to-earnings multiple had come down 70% over the past year as of the writing of Fotheringham’s note.
“We view this as a rare GARP opportunity, given SQ’s typical premium,” referring to growth at a reasonable price. “Obviously, we wish we had upgraded earlier, but it’s not too late.”
Fotheringham has a $159 price target on Block’s stock or more than 26% above current levels. Square changed its corporate name to Block late last year, opting for a moniker that it said encapsulated its variety of businesses, though the company kept the Square brand name for its merchant segment.
Fotheringham said that his upgrade is “predicated on valuation” as he sees attractive opportunities across the payments landscape.
He also floated Block’s recently announced May 18 investor day as a potential positive catalyst for Block’s stock. “We assume one-off investor days like this one are designed to announce something new; otherwise, we fail to see their point,” he wrote.
Block Chief Executive Jack Dorsey said on the company’s earnings call last week that the investor day would allow Block to “go deeper into our mission, products, strategy and long-term goals.”