Key Moments
- Rothschild upgraded Block (NYSE:SQ) to Neutral following a roughly 70% share price drop since its initiation of coverage.
- The firm now expects about 70% of Block’s future revenue growth to be driven by Cash App, supported by the Borrow unsecured lending product.
- Rothschild lifted its price target to $55 from $45, projecting about 8% upside and highlighting rising loan loss risks and ongoing pressure in the Square business.
Rating Upgrade Follows Steep Share Price Decline
Rothschild upgraded Block to Neutral after a substantial pullback in the stock, while cautioning that increasing credit losses could still pressure earnings.
The firm noted that investor concerns about Block’s balance sheet deployment and the underperformance of its Square payments segment have largely materialized, with the stock falling about 70% since coverage began.
Block is now trading at approximately 13x 2027 GAAP earnings, which Rothschild said is broadly in line with neobank peers. This valuation is seen as consistent with a shift in investor perception as growth centers more on the Cash App business.
“Our thesis was predicated on balance sheet use impacting the rating and the payments business falling behind peers. Both have played out. Given revenue growth comes from CashApp, we believe the market is increasingly viewing Block as a neobank,” analysts said.
Cash App Emerges as Primary Growth Engine
Rothschild estimates that around 70% of Block’s prospective revenue expansion will be driven by Cash App. A key contributor is Borrow, Block’s unsecured lending product, which is expected to benefit from broader nationwide rollout and increased engagement from existing users.
The firm raised its earnings forecasts by 28% to 34%, attributing the revision to stronger lending trends and reduced costs, including anticipated savings related to artificial intelligence initiatives. It also projects operating margins to climb to about 29% by fiscal 2028.
| Metric | Rothschild View |
|---|---|
| Share price move since initiation | Down about 70% |
| 2027 GAAP P/E multiple | Around 13x |
| Share of future revenue growth from Cash App | About 70% |
| Earnings estimate revision | Up 28% to 34% |
| Expected operating margin by fiscal 2028 | About 29% |
| Adjusted EPS vs. consensus (2026-2028) | 4% to 11% below consensus |
| New price target | $55 (from $45) |
| Implied upside | About 8% |
Credit Risk Concerns Temper Outlook
Despite the improved earnings trajectory, Rothschild warned that market expectations may not fully incorporate potential credit losses tied to lending expansion. The firm expects loan losses to move closer to management’s 3% tolerance level as the Borrow product scales.
Reflecting this more cautious stance on credit, Rothschild’s adjusted EPS forecasts for 2026 through 2028 remain 4% to 11% below the current consensus range.
Square Business Still Under Pressure
Rothschild also highlighted ongoing challenges in Block’s Square segment. It pointed to U.S. volume growth that continues to trail competitors, including Shopify’s in-store solution. The firm added that recent workforce reductions could further complicate efforts to reinvigorate Square’s performance.
Valuation Leaves Limited Near-Term Upside
The brokerage increased its price target on Block shares to $55 from $45, which it said represents roughly 8% potential upside from current levels. However, it argued that the recent re-rating of the stock constrains near-term appreciation, even as the company’s profile increasingly resembles that of a neobank, led by Cash App.
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