Portfolio: Zacks Focus List

Block (NYSE: XYZ) presents a compelling risk/reward setup for investors with a 2-year horizon. The company’s February 2026 restructuring — cutting headcount by over 40% — has fundamentally repositioned its cost base, with 2026 guidance now calling for $12.2B in gross profit (+18% YoY) and $3.2B in adjusted operating income (+54%), implying a 26% operating margin — a profitability inflection that was originally penciled in for 2027-2028. The market is arguably still pricing Block as a growth-challenged fintech rather than a maturing, high-margin platform. At ~$71/share and ~$42B market cap, the stock trades at roughly 19x 2026 adjusted EPS of $3.66 — a discount to historical multiples near 33x — while the closed-loop ecosystem between Square and Cash App scales toward $15.8B in gross profit by 2028 and a $5B share buyback program provides meaningful downside support.

The key risks are real but manageable. Cash App monthly active user growth has been sluggish, take-rate compression remains a secular concern across fintech, and a Q1 2026 net loss of $308M and ongoing DOJ settlement discussions cloud near-term sentiment. Block’s high-margin lending business — now at a $22B loan book — combined with Square’s upmarket enterprise expansion represent underappreciated earnings drivers that are just beginning to reflect in results. Investors who can tolerate volatility and look past the headline noise are buying a structurally improving business at a historically cheap multiple.