Wells Fargo analyst Andrew Bauch recently weighed in on the contentious status of PayPal Holdings Inc. and Block Inc. shares, predicting that the controversy surrounding these stocks will persist.
Bauch initiated coverage on both companies with equal-weight ratings, expressing skepticism that either one will be able to achieve a significant turnaround to satisfy investors.
Concerning PayPal, Bauch noted that the company has been aggressively acquiring and defending market share in "low-complexity segments," resulting in success. However, he raised concerns about the impact on profit margins. Bauch's projections indicate that PayPal will experience adjusted operating income growth at a high-single-digit rate in 2024 and 2025, which falls short of consensus expectations for low-double-digit increases.
"While PYPL's stock performance has been underwhelming, there is no definitive proof that the erosion of its fundamentals has ended," Bauch stated. He set a target price of $55 for PayPal shares but acknowledged that expectations may already incorporate the deteriorating trends, with negative sentiment prevalent among buyers.
It remains to be seen how these controversial stocks will fare in the future, as they continue to attract attention and stir debate among Wall Street investors.
Block SQ: Innovating, but Skepticism Remains
The innovative nature of Block SQ is undeniable. With an impressive track record of groundbreaking ideas, the company has certainly caught the attention of many. However, there are doubts about its ability to consistently surpass expectations, particularly with the ambitious buy-side estimates floating around.
The evolution of Block's narrative is intriguing. As management shifts its focus towards sustainable and profitable growth, they are setting medium-term aspirations for achieving the coveted "Rule of 40" performance. This entails a combination of gross-profit growth and adjusted-operating-income margin.
Investors, though understandably skeptical, cannot fully dismiss the potential. Block has struggled to generate substantial operating income in the past and faces fierce competition in its seller business. Moreover, sustaining growth rates for their Cash App mobile wallet may require a continuous influx of investments.
The bullish argument primarily revolves around valuation, which may not resonate strongly with uninvolved investors compared to a more fundamental case. On the other hand, the bearish scenario is equally unattractive since valuations are nearing levels that suggest most of the anticipated downside risks have already materialized.
Bauch, a reputable analyst, has set a target price of $45 for Block's stock.
Related Content: BofA Predicts Over 50% Upside for Block's Stock After Massive Pullback
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