Sam Boughedda
2 min read
Investing.com — Morgan Stanley cut Block to Equal-weight from Overweight and lowered its price target for the stock to $80 from $90 per share in a note on Monday.
The bank cited bullish investor expectations, rising credit risks and intensifying competition.
“We downgrade Block to EW amid bullish sentiment and as we see modestly higher risk to near-term growth and profitability expectations, particularly following substantial margin improvement in CY26,” analyst James Faucette wrote.
Morgan Stanley expects a near-term slowdown in Cash App Borrow originations as Block shifts from four-week to six-week loans against tougher comparisons in the second half.
Faucette explained that because borrowing limits have stayed relatively constant, customers are effectively taking out fewer loans per quarter. The bank now forecasts consumer loan origination growth of 36% in the third quarter and 19% in the fourth, down from 40% and 20% previously.
The longer-duration loans should also drive higher credit losses. Morgan Stanley expects Borrow loss rates to rise from about 3.3% in the second quarter of 2026 to a peak of 4.5% in the fourth quarter of 2027.
It now sees transaction and loan loss expense reaching 24% of gross profit in 2027 and 2028, up from 16% previously.
However, six-week loans carry a 7.5% fee compared with the historical 5%.
“Still, with the higher pricing of 7.5% the unit economics of the longer duration product should still be better than the previous four-week loans, which earned 5% and had a loss rate around 3%,” Faucette said.
The bank also expects slower margin expansion after outsized efficiency gains this year, along with potential reinvestment needs as competition intensifies in Square’s core offline payments market.
Original Article
Morgan Stanley sees limited upside for Block as credit risks rise
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