Keeping It Simple

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Block (SQ) investors remain concerned over decelerating Square Seller and Cash App gross profit growth in Q3, relating to third-party data that pointed to slowing trends in October, Morgan Stanley said in a Wednesday note.

"For now, we think ongoing health of overall employment and ADP commentary around strength in its down-market businesses read favorably for Square," said the investment firm. Morgan Stanley also said results and management commentaries from Block's peers demonstrate "fairly resilient" consumer spending trends through October.

Most investors, however, are still anticipating a "meaningful beat and raise" for Block's Q3 earnings before interest, taxes, depreciation, and amortization, according to Morgan Stanley. The firm also noted that Block's investment case requires accelerating growth of both its Square business and Cash App as any weakness in Square's profitability could compromise funding for the Cash App.

Block is set to release its Q3 results on Nov. 2.

Morgan Stanley maintained an equal-weight rating on Block, with a price target of $69.