Block’s Cash App Growth Is Strong But ‘Increasingly Credit-Led,’ Square Remains ‘Missing Second Engine,’ Scotiabank Says

Square expanded its merchant footprint through a new partnership with 100-year-old Parsons Bakery across 48 locations.

• Scotiabank initiated coverage of Block with a ‘Sector Perform’ rating and an $82 price target.
• The firm said that lending is playing a larger role in the company’s growth, increasing the importance of credit performance as the organization continues to grow. 
• Cash App’s credit-led growth is on the rise, while Square remains the company’s “missing second engine,” the analyst said.

Shares of Block Inc. (XYZ) rose on Wednesday after Scotiabank initiated coverage of the stock with a “Sector Perform” rating.

Scotiabank put an $82 price target on the XYZ stock, citing better execution, a structurally lower cost base, and one of the more distinct consumer and seller ecosystems in fintech. 

The firm said that lending is playing a larger role in the company’s growth, increasing the importance of credit performance as the organization continues to grow. Cash App growth is “strong, but increasingly credit-led," the analyst told investors, adding Square remains the “missing second engine”. 

Block's lending operations include Square Loans, launched in 2014, for merchants as well as consumer loan products like Cash App Borrow, which is becoming an increasingly crucial driver of Cash App growth.

XYZ stock was trading near $79 after rising over 60% from its February low of $49.80. 

On Stocktwits, retail sentiment around XYZ rose to the ‘neutral’ zone from the ‘bearish’ zone, accompanied by ‘low’ chatter levels over the past day.

New Partnerships On The Way

Square announced that Parsons Bakery has set up its point-of-sale and payment-processing systems across its locations. The chain operates 48 locations across 10 counties and will use Square for Restaurants Plus daily, as well as Square Loyalty and Square Marketing for customer engagement, and Square Online for click-and-collect ordering at select sites. 

Square stated that the bakery had been using different systems for point-of-sale, payments, loyalty, and online ordering and wanted a single platform to cover all aspects of its operations. Parsons, formed in North Somerset in 1926, has been in business for a century and has just transitioned to “employee-owned”.

Shares of Block have gained nearly 23% this year.

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