There’s limited upside potential ahead for Block as a softening consumer discretionary spending outlook will likely slow down gross profit growth for the Square and Cash App parent, according to UBS. Analyst Rayna Kumar downgraded shares to neutral from buy. She also lowered her price target to $65 from $102. The new price target implies just 10.4% upside from where shares closed Tuesday. “With a lack of catalysts in sight, and re-acceleration of gross profit growth unlikely, we see limited upside potential,” Kumar said in a Wednesday note. According to the analyst, Cash App is seeing a slowdown in monthly active user growth and moderation in monetization rates. UBS expects restaurant sales growth to slow down to 5% from 8% by 2024. Non-grocery retailer sales will also likely fall, the bank said. The analyst added that Block shares are trading “near a 5-year low EV/Gross Profit multiple of 4x,” suggesting the market has largely priced in gross profit slowdown. Intensifying competition is also driving pricing lower for Square’s business, contributing to the deceleration of gross profit growth, according to Kumar. Shares fell nearly 3% Wednesday during premarket trading. The stock is down 6.5% in 2023. — CNBC’s Michael Bloom contributed to this report.
