4 Huge Analyst Calls: Block Slashed on 'Lack of Catalysts'; Chewy Bumped to Buy

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Here is your Pro Recap of the top takeaways from Wall Street analysts for the past week: a downgrade at Block, an upgrade for Chewy, an Underperform initiation for Cloudflare and an Overweight initiation for Surf Air Mobility

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What happened? On Tuesday, UBS downgraded Block (NYSE:SQ) to Neutral with a $65 price target.

What’s the full story? UBS analysts are cautious on Block, the fintech company formerly known as Square, as they expect its gross profit growth to slow down in the second half of 2023 and 2024.

UBS attributes the slowdown to the weakening of consumer discretionary spending, the deceleration of Cash App monthly active user growth, and the moderation of Cash App monetization rates. UBS analysts also noted that Block has been improving its profitability and is beating quarterly expectations on adjusted earnings before interest, taxes, depreciation and amortization (EBITDA), but they think investors are more concerned about Block’s gross profit growth potential. The analysts cited the 14% drop in Block’s shares after it reported strong adjusted EBITDA but guided for lower gross profit growth for the second half of 2023.

UBS does not see any catalysts that could reaccelerate Block’s gross profit growth in the near term, and they see limited upside potential for the stock. However, the analysts also point out that Block’s shares are trading near a five-year low multiple in enterprise value to gross profit (EV/GR) — 4x — which suggests that the market has already priced in the potential for slower gross profit growth next year.

Neutral at UBS means “FSR [forecast stock return] is between -6%