On Friday, Wolfe Research adjusted its stance on PayPal Holdings Inc . (NASDAQ:PYPL), upgrading the stock from Peerperform to Outperform. The firm set a new price target of $107.00, which is based on approximately 19 times the estimated earnings per share (EPS) of $5.61 for the calendar year 2026.
Currently trading at a P/E of 21.2x and showing strong momentum with a 45% gain over the past six months, PayPal appears undervalued according to InvestingPro analysis. The upgrade reflects a positive outlook on PayPal's potential to sustain mid-teens or higher EPS growth, which could justify a valuation multiple exceeding 20 times.
The analyst at Wolfe Research notes that during the first Trump administration, companies within their coverage traded at a 30% premium compared to the market. There is an anticipation that PayPal could align more closely with its peer group's performance. The firm recognizes PayPal's efforts in streamlining its operations, managing expenses effectively, and its commitment to returning capital to shareholders.
Looking ahead to 2025, there are expectations for PayPal to exceed financial forecasts as it continues to innovate with its branded checkout options, implements value-based pricing on Braintree, and further monetizes Venmo. With revenue growing at 8% and maintaining a healthy gross profit margin of 40%, the company shows strong operational execution.
The analyst also highlights the potential for PayPal's debit adoption through its PYPL Everywhere initiative to make a significant contribution. InvestingPro subscribers can access 8 additional key insights and a comprehensive Pro Research Report that provides deep-dive analysis of PayPal's growth initiatives and market position.
PayPal's strategy indicates an emphasis on leveraging its operations, with plans to increase non-transaction operating expenses by a low single-digit percentage next year. In the long term, there is a belief that PayPal can boost its gross profit growth to the high single-digit range, supported by the initiatives mentioned as well as cyclical tailwinds from an uptick in discretionary spending.
However, there are still uncertainties regarding the lasting impact of Braintree's repricing efforts, the success of the Fastlane adoption, and the competitive challenges posed by services like Apple (NASDAQ:AAPL) Pay on PayPal's branded offerings. Despite these challenges, PayPal maintains a strong financial health score on InvestingPro, with management actively buying back shares and maintaining a solid return on equity of 22%.
In other recent news, PayPal Holdings Inc. has seen several noteworthy developments. RBC Capital has maintained its Outperform rating on PayPal, highlighting the company's strategy to align prices with the value provided. This includes a significant change in pricing for PayPal's Pay Later service, set to take effect on January 13, 2025, which is expected to contribute to the company's revenue growth. Barclays (LON:BARC) also maintained its Overweight rating on PayPal, focusing on the company's recent pricing updates for U.S. merchants.
However, Bernstein maintained its Market Perform rating on PayPal, citing the company's balance of challenges and opportunities. The firm acknowledged PayPal's aggressive share buyback program and robust cash flow generation, but also noted the competitive pressures on PayPal's main revenue-generating features.
Additionally, during a presentation at the UBS Global Technology and AI Conference, PayPal reaffirmed its comfort with the previously issued guidance, anticipating mid-single-digit growth for the quarter. The company also highlighted its strong performance during the Cyber Five days and reported robust engagement with U.S. consumers.
Lastly, RBC Capital Markets identified PayPal as one of its top five investment ideas for fiscal year 2025, reflecting confidence in the company's strategic direction and potential for growth.
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