Block nabs bullish rating in new coverage at J.P. Morgan on Afterpay deal
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J.P. Morgan analyst Tien-tsin Huang assigned Block (NYSE:SQ) an Overweight rating after the company closed its acquisition of Buy Now, Pay Later financing firm Afterpay, Block's biggest purchase to date.
Huang expects the acquisition to boost Block's (SQ) gross profit growth by ~4 percentage points in 2022 and ~2pp/year thereafter before synergies.
The analyst pointed to new product launches as "positive catalysts de-risking the hard/soft landing concern for stand-alone Cash App growth deceleration near-term."
For Block's (SQ) Square seller ecosystem, Afterpay helps it go "deeper and broader in the commerce flow". The acquisition should also boost Cash App usage and monetization through higher Cash Card adoption and some overlap with Cash App Pay, Huang said.
The analyst's Overweight rating clashes with the SA Quant rating of Sell and agrees with SA Author's average rating and Wall Street analysts' average rating of Buy.
Payment tech stocks have weakened over recent months. Block (SQ) has dropped 43%, PayPal (NASDAQ:PYPL) -27%, Global Payments (NYSE:GPN) -17% and Fiserv (NASDAQ:FISV) +2% in the past year as seen in this graph.
Still, Block (SQ) stock falls 6.3% in premarket trading; rival payment tech firm PayPal (PYPL) slides 18% premarket after issuing softer-than-expected 2022 guidance.