Shares of Block are too cheap relative to the payment company's high-quality fundamentals, according to Bank of America. The firm reiterated its buy rating on the stock along with its price objective at $71. That target suggests a 62% upside from Monday's closing price of $43.71. Shares of Block, the parent company of Square and CashApp, are down more than 30% since the start of the year. Since the end of July alone, the stock has declined 46%. SQ YTD mountain SQ YTD chart "We believe this pullback is quite unjustified, but suspect it is due to: 1. Rotation out of growth amid the higher rate environment; 2. Investor positioning; 3. Questions surrounding Square; 4. Cash App GP deceleration in 3Q, along with soft intraquarter high-frequency data points; 5. Last month's platform outage, which was a bad optic, but in our view likely a one-off, and was not the result of a cyberattack," wrote analyst Jason Kupferberg. Kupferberg also pointed toward Block's strong fundamentals as a catalyst for the firm's potential upside. Besides the stock's current cheap valuation, he thinks sentiment is too negative versus Block's high-quality business model. "Shares underperformed in '22 due to macro concerns, but we believe the stock is not being given enough credit for the general resilience the business has shown to date as well as its opex [operating expenses] discipline," he said. "Consensus is modeling a 16-17% GP CAGR for '23-'25E, and even if this proves to be modestly too high, we believe this growth profile justifies a materially higher multiple, and we maintain our Buy rating." Finally, the analyst added that he's hopeful about Block's ability to continue reducing its cost structure, therefore improving its profitability targets. — CNBC's Michael Bloom contributed to this report.
