Rothschild has re-rated Block to Neutral after the company’s shares fell sharply, saying the market has already absorbed several of the concerns that underpinned its initial stance. The broker noted that issues tied to balance sheet deployment and softer results in Block’s Square payments business have largely played out, and that the stock has dropped roughly 70% since the firm initiated coverage.
The bank said Block is trading at about 13 times GAAP earnings for 2027, a multiple it views as consistent with neobanking peers. That multiple, Rothschild argued, reflects a shift in how investors are valuing the company as revenue growth increasingly comes from Cash App rather than the payments business.
"Our thesis was predicated on balance sheet use impacting the rating and the payments business falling behind peers. Both have played out. Given revenue growth comes from CashApp, we believe the market is increasingly viewing Block as a neobank," the analysts said.
Rothschild expects about 70% of Block’s future revenue expansion to be attributable to Cash App. A significant component of that growth is projected to come from Borrow, Block’s unsecured lending product. The brokerage anticipates that wider national availability of Borrow and increased penetration among existing Cash App users will support loan and fee growth.
On the earnings front, Rothschild raised its estimates by 28% to 34%, driven by stronger-than-expected lending growth and lower costs, including efficiencies tied to artificial intelligence. The firm also forecast operating margins to expand to roughly 29% by fiscal 2028.
Despite the upbeat revisions, Rothschild warned that consensus forecasts could be underestimating credit losses as the company expands lending. The brokerage projects loan losses may trend toward management’s stated tolerance of 3% as loan volumes rise. Its adjusted earnings-per-share projections for 2026 through 2028 sit 4% to 11% below consensus estimates.
Rothschild additionally highlighted ongoing pressure in the Square payments business, noting that U.S. volume growth has been trailing some competitors, including rival in-store offerings. The firm also cautioned that recent workforce reductions may slow the pace of operational recovery.
Reflecting its updated view, Rothschild increased its price target on Block to $55 from $45, implying roughly 8% upside from current levels, but the firm said the stock’s re-rating leaves limited near-term upside for investors.
Sector implications: The brokerage note has ramifications for the fintech and consumer lending sectors, as the view of Block shifts more toward neobanking dynamics and credit risk becomes a larger focus for earnings models.