Why Block Analyst Thinks Company's Acquisition Of Afterpay Could Have Transformative Potential

Block Inc (NYSE: SQ) completed the acquisition of "buy now pay later" specialist Afterpay in January. An analyst at KeyBanc Capital Markets sees the acquisition as imparting transformative potential.

The Block Analyst: Josh Beck maintained an Overweight rating on Block shares and increased the price target from $175 to $180. The analyst said he continues to recommend Block as a key idea.

The Block Thesis: The Block and Afterpay combo has an unusually large number of synergy categories, analyst Beck said. The industry-first deal spans two distinct consumer-merchant ecosystems, he added.

KeyBanc's analysis indicated a range of scenarios, resulting in a gross profit synergy run-rate of $0.8 billion to $5 billion, the analyst said. The low-end of the range would produce a 20% return on invested capital and more than 100% at the high end, he added.

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With the company issuing a positive update on its Cash App durability, the debate is shifting toward Block's ability to effectively stitch together consumer and merchant ecosystems, the analyst said. Afterpay's BNPL capabilities are a critical layer in defining the ecosystem growth potential, he added.

"Block is well-positioned to benefit from a shifting FinTech industry landscape that favors two-sided ecosystem synergies, BNPL-driven commerce, SuperApps and crypto optionality," KeyBanc said.

SQ Price Action: At last check, Block shares were rallying 6.47% to $142.31.

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Photo: Courtesy Afterpay