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

Citigroup analyst Peter Christiansen maintained Block Inc SQ with a Buy and lowered the price target from $135 to $90.
Christiansen believes SQ, now at all-time lows on an EV/GP and EV/EBITDA basis, represents a compelling buying opportunity.
Key to 2023 will be efficiency gains, tighter discretionary spending, and slower hiring, which has already resulted in a 20%- 25% expense reduction 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.
Now with normalizing earnings power, the analyst shifted the valuation framework to a forward EV/EBITDA multiple range of 35x-40x, commensurate with both pre-pandemic norms and expectations for a ~40% EBITDA 3YR CAGR.
Price Action: SQ shares traded higher by 2.23% at $62.78 on the last check Wednesday.

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