Portfolio: Zacks Focus List

Block Inc. looks attractive as a growth-at-a-reasonable-price fintech: Cash App and Square remain powerful distribution engines, and management is now pairing product growth with much stronger operating discipline. The company’s 2026 outlook calls for 17% gross profit growth to $11.98 billion, which supports a credible margin-expansion story and a higher earnings multiple if execution holds. This is because Block’s operating leverage is kicking in now, and management’s recent actions have significantly accelerated the timeline. In late February 2026, the company announced a massive 40% workforce reduction tied to an “AI-first” restructuring plan. This aggressive cost-cutting move fundamentally shifts Block’s cost structure, allowing revenue growth to drop much more cleanly to the bottom line.

The impact on margins is expected to be immediate and substantial throughout 2026. Management raised its 2026 adjusted operating income guidance by $500 million to $3.2 billion. As a result, while gross profit is projected to grow by an impressive 17%, adjusted operating income is expected to surge by 54%. This translates to an adjusted operating margin expansion from around 20% last year to approximately 26% in 2026. If the company can successfully integrate these AI efficiencies without sacrificing product quality or revenue growth, the full margin impact of this leaner organization should be highly visible by the second half of 2026.

Given that shares have largely traded sideways for 4 years while gross profit, and now profitability, has continued to build, we think shares of XYZ are a loaded spring getting ready for a big breakout over the next 12 months.