Leaner and Meaner

Block $XYZ ( ▼ 2.41% ) stunned Wall Street by cutting more than 4,000 employees from a workforce of over 10,000.

The stock surged more than 20% on the news. But HSBC $HSBC ( ▼ 4.73% ) believes the move signals more than just short-term strength.

The bank upgraded shares to Buy from Hold and raised its price target to $77 from $70, implying roughly 20% upside from Tuesday’s close.

HSBC analyst Saul Martinez said the layoffs follow a year of healthy financial and operating performance.

He materially raised earnings estimates after Q4 2025 results, citing accelerating profitability improvements. The headcount reduction should lift earnings power over time.

Management noted that benefits from the cuts will not be fully reflected until the second half of 2026, with about 60% of 2026 adjusted operating earnings expected in that period.

Martinez sees upside to consensus 2027 estimates.

He believes fourth quarter 2026 exit rates will make clear that current 2027 earnings projections are too conservative.

While he flagged risks tied to rapid lending growth, he pointed to healthy gross profit expansion, operating margin improvement, and a meaningful de-rating of the stock over the past year.

For HSBC, the math is compelling. Leaner teams, rising margins, and reset expectations could position Block for its next leg higher.