Block Inc. stock dips on downgrade from Morgan Stanley

Shares of Block, Inc. (SQ) are trading lower on Thursday afternoon as the company faced a downgrade from Morgan Stanley analysts, rating the stock Underweight from Equal-Weight and lowering the price target from $62 to 60. The analyst cites doubts about Cash App's ability to grow, especially with Gen Z consumers.

Yahoo Finance Anchors Josh Lipton and Julie Hyman break down the latest development with Block.

For more expert insight and the latest market action, click here to watch this full episode of Market Domination.

Editor's note: This article was written by Nicholas Jacobino

Video transcript

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- Let's check in on some of the top analyst calls of the day. Morgan Stanley cutting its recommendation on Block to underweight and lowering their price target down to 60. And you can see Block really getting hit in today's trade, Julie. Morgan Stanley not a fan. How come?

It sounds like, Julie, they're not so optimistic about Cash App's kind of growth potential here. What's interesting is you hear Block talk kind of bullishly about Cash App. No surprise. They'll talk about how they see Cash App kind of becoming a top provider of banking services here in the US. But Morgan Stanley obviously not buying it. Says, the majority of Gen Z's potential has already been captured primarily by competitors at this point.

JULIE HYMAN: Yeah, I thought that was quite interesting because I think of Cash App as being something and sort of-- yeah, and Square's, like, banking potential, Block's banking potential as being among that younger cohort. So this was an interesting call. The stock hasn't been doing very much, by the way. It's only up around 1% year to date. And that might have changed given what we're seeing today. It's up about 13% over the past year. So maybe some of this outlook is priced in. The stock has three sell ratings overall. Although, it's dwarfed by the number of buys. But there is a little bit of a negative drumbeat on the street around this one.

- Yeah. Interesting too, they go on to say given the slow development of credit products-- they also kind of hammered them on that point too. So they believe the highest value Cash App users are going to churn at an accelerating rate. So their price target 60, which, of course, implies a pretty sharp turn here. The average price target, we should point out, is 91.

JULIE HYMAN: Also, coincidentally, by the way, Mark Palmer of Benchmark emailed me earlier today to say that he has a contrarian positive call on Block and that he says that the company has unique advantages relative to alternatives.

- Very different takes.

JULIE HYMAN: Yes, indeed.