The block of shares is a buy. Cash App’s rating is “way too low”.

To block
the shares are undervalued and in need of a rally, according to analysts at BofA Securities, who updated the stock on Friday.

Analyst Jason Kupferberg raised his rating on Block (ticker: SQ), formerly known as Square, to buy Neutral.

Kupferberg believes Block's consumer payment product, Cash App, is currently undervalued by investors.

"The sum-of-the-parts analysis suggests an implied valuation of around $6.5 billion for Cash App, which we believe is far too low," he wrote in a research note on Friday.

"Once management clarifies forward-looking expectations for Cash App, which could occur as soon as the 4Q21 earnings call on Feb. 24, we believe the Street will recalibrate its view on SQ's valuation, ultimately resulting in an outperformance of equities from current levels," he added.

Citigroup analyst Peter Christiansen generally agrees with Kupferberg's assessment. Christiansen expects Cash App's gross profit to grow by around 70% in fiscal 2021, with monthly downloads steadily improving. The app is gaining popularity among Millennials and Gen Z users, which the analyst said was "admirable given that most of this age group is still several years away from reaching its earning potential.

Christiansen was also optimistic about the value creation opportunity that stems from Block's recent acquisition of "buy now, pay later" company Afterpay. Not only will the acquisition help improve user growth and engagement on CashApp, but it could also pave the way for building a strong loyalty platform, he said.

"By themselves, both apps have multiple utilities and a lot of content," he wrote. "We recognize that unifying these platforms is an important driver of value."

Citi took over Block's coverage on Friday with a buy rating and price target of $220. The previous rating was a buy, with a price target of $320. The stock's multiple is currently below pre-pandemic levels, but Christiansen doesn't think that level will last if Block's earnings beat expectations.

Wedbush analyst Moshe Katri was more bearish on the stock, reducing his price target to $140 from $190 and reiterating a neutral rating.

Katri believes the corrected stock price reflects a more accurate valuation. Block was trading near $300 when it announced the acquisition of AfterPay, implying a strong AfterPay valuation of nearly $30 billion.

"With SQ's stock price correction, we believe AfterPay's implied valuation ($10B+) is more warranted," he wrote on Friday.

BofA's Kupferberg also lowered its price target to $185 from $221 due to the recent selloff, but remained bullish on the stock's long-term performance.

Bulk shares fell 1.2% to $107.75 on Friday. The stock has lost around 33% this year and 60% over the past 12 months.

Write to Sabrina Escobar at [email protected]