After a prolonged wait, PayPal Holdings bulls finally have a reason to rejoice. The payments company’s recent earnings beat, coupled with the appointment of new CEO Alex Chriss, has put the spotlight on its potential turnaround.
In premarket trading on Thursday, PayPal (PYPL) stock witnessed a 6.5% surge to reach $55.02.
Both Wall Street and the broader market responded positively to the raised earnings forecast and Chriss’s emphasis on pursuing profitable growth.
Over the past two years, PayPal stock has experienced a sharp decline of more than 75%. Additionally, it suffered a setback last week following a profit warning from French company Worldline (WLN.France), which impacted the entire payments sector. However, it is important to note that PayPal has limited exposure to the European market.
Interestingly, PayPal’s current valuation could work in its favor, making it a potential ally for Chriss. The stock currently trades at 9.4 times its projected earnings for the next 12 months, significantly lower than its average price-to-earnings multiple of over 30 times in the past five years (according to FactSet).
“We think the risk of failure is largely priced in,” stated Truist Securities analyst Andrew Jeffrey in a research note, highlighting the potential upside for investors.
As PayPal gears up for a turnaround with favorable financial indicators and a fresh leader at the helm, investors and market watchers are eagerly keeping an eye on its future prospects.
Jeffrey Lowers Target Price on PayPal Stock
Jeffrey, an analyst at Truist, has recently lowered his target price on PayPal stock from $70 to $65. Despite the decrease, he still maintains a Buy rating on the stock. The revised target price is based on a valuation of 9.9 times PayPal’s projected earnings for 2025.
Leveraging Data to Stay Ahead
Jeffrey believes that PayPal has the potential to use the data from its nearly 400 million active customers to fend off competitors like Square’s Cash App and privately owned Stripe. By leveraging this valuable data, PayPal can find innovative ways to stay ahead in the market.
Focus on Acquisitions and Asset Sales
To further strengthen its position, Jeffrey suggests that PayPal should allocate more of its net cash towards potential acquisitions rather than relying solely on stock buybacks. Acquisition strategies can help PayPal expand its reach and tap into new markets.
Furthermore, asset sales could be another lever for PayPal. Last month, the company announced the sale of logistics company Happy Returns to United Parcel Service (UPS) for $465 million. Although the exact figures were not disclosed, PayPal mentioned that the sale price exceeded the acquisition cost in 2021.
Streamlining Portfolio of Assets
Analyst Tien-tsin Huang from J.P. Morgan agrees that PayPal needs to simplify its portfolio of assets. He sees the divestiture of Happy Returns as an indication of management’s plans to focus on core businesses. Huang also suggests that more non-core divestitures could be in store for PayPal.
Despite lowering the target price on PayPal from $100 to $80, Huang still maintains an Overweight rating on the stock.
In conclusion, both Jeffrey and Huang acknowledge the potential of PayPal but offer different perspectives regarding its strategic direction and valuation. As PayPal continues to navigate the ever-evolving financial landscape, strategic decisions will play a crucial role in maintaining its competitive edge.
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