Block stock soars 8% after S&P 500 debut — analysts say the rally might be far from over
Inc. stock jumped 8% after it was added to the S&P 500 index. Shares also rose 9% in pre-market trading right after the news. Companies added to the S&P 500 usually go up because index funds are forced to buy their stock, creating extra demand, as per the reports.
This index change will be official on July 23, before the market opens. Block is replacing Hess Corp., which is merging with Chevron in a $55B deal. After the news, Block's market value was around $44.8 billion, according to the report by Reuters.
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Analyst reaction: Bullish signs
JP Morgan's Tien-tsin Huang raised Block's price target from $60 to $90, keeping an Overweight rating. He said over 54 million shares may be bought due to index demand — 7x Block's average daily volume, as per theTipRanks report.
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Huang also believes Block deserves a higher valuation multiple thanks to faster product rollouts and strong marketing. He used a 5x forward gross profit for the $90 target — still below the 7x–9x range of other fintech companies, as per the reports.
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What happens next?
Block's Q2 earnings will be out on August 7. Wall Street expects earnings per share (EPS) of $0.67 — down 28% year-over-year. Revenue of $6.27 billion, a small rise of 1.8%.
TipRanks shows Block has a Moderate Buy rating from analysts, 28 Buys, 6 Holds, 2 Sells in the last 3 months. Average stock price target: $71.29, which shows 2.1% downside risk from current levels, as per the Reuters report.
Block's Background & Innovation
Block was founded in 2009 by Jack Dorsey and was first known as Square. In 2021, it was renamed Block to reflect its wider work in blockchain and crypto, according to the reports.
Block builds tools for:
Point-of-sale (POS) payments
Peer-to-peer money transfers
Bitcoin services
It operates in both traditional finance and digital assets space. Analyst Stephen Biggar from Argus Research said Block earned the S&P spot due to its innovation, profits, and improving margins, as per the report by Reuters.
Crypto growth boosts outlook
Crypto payments are rising in 2024 and could grow more after President Trump signed a stablecoin regulation bill. This law helps dollar-pegged stablecoins go mainstream, which supports companies like Block.
Financial performance: Mixed picture
Block's revenue growth has slowed a lot. Three-year average growth was 13.3%, better than the S&P 500's 5.5%, but now it's just 4.6% year-over-year. In the last quarter, revenue fell 3.1%, from $6B to $5.8B, as per the Forbes report.
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Profitability Concerns
Operating income was $1.8B, with an operating margin of 7.4% — that's low compared to others. Operating cash flow was $1.4B, with a 5.6% margin, way below the S&P 500 average of 14.9%.Net income was $2.6B, with a net margin of 10.9%, just under the S&P average of 11.6%.
This shows Block may have non-operating gains, not strong core performance. Debt-to-equity ratio is 13.4%, better than the S&P 500's 19.4% average. Block has $13B in cash, which is 35.1% of its assets, giving it room to invest, acquire, or survive downturns, as per the Forbes reports.
FAQs
Q1. Why did Block stock go up after joining the S&P 500?
Block stock rose because index funds had to buy it after its S&P 500 inclusion, increasing demand and price.
Q2. Is Block a good stock to buy after the S&P 500 news?
Analysts see growth potential after the S&P 500 boost, but warn of slowing revenue and profit challenges.
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