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PayPal
Holdings bulls have had to wait a long time but they finally have something to celebrate. An earnings beat and new management are putting turnaround hopes front and center for the payments company.
PayPal
(ticker: PYPL) stock was up 3.5% at $53.47 in early trading on Thursday.
Wall Street and the broader market reacted positively to a raised earnings forecast and new CEO Alex Chriss saying his focus will be on profitable growth.
PayPal stock has fallen more than 75% over the past two years and suffered last week after a profit warning from French company
Worldline
(WLN.France) rocked the wider payments sector, despite PayPal’s limited European exposure.
Chriss’s greatest ally could be PayPal’s current valuation. The stock trades at 9.4 times its forecast earnings over the next 12 months. Its average price-to-earnings multiple over the past five years is more than 30 times, according to FactSet.
“We think the risk of failure is largely priced in,” wrote
Truist
Securities analyst Andrew Jeffrey in a research note.
Jeffrey lowered his target price on the stock to $65 from $70 but kept a Buy rating on the stock. The new target is based on a valuation of 9.9 times PayPal’s forecast earnings for 2025. He backed the company to find ways to use the data of nearly 400 million active customers to stave off competitors such as
Block
(SQ) and privately owned Stripe.
PayPal has been ramping up stock buybacks this year, committing to repurchase $5 billion worth of shares this year. Truist’s Jeffrey argues the company should use more of its net cash to focus on potential acquisitions instead.
Another potential lever is asset sales. PayPal said last month it was selling logistics company Happy Returns to
United Parcel Service
(UPS) for $465 million. PayPal said the sale price was “meaningfully higher” than the cost of the acquisition in 2021 but didn’t disclose an exact figure.
“PayPal needs to simplify its portfolio of assets, and we view the divestiture of Happy Returns as indicative of management’s plans here, leading us to believe further non-core divestitures are possible,”
J.P. Morgan
analyst Tien-tsin Huang wrote.
Huang lowered his target price on PayPal to $80 from $100 but kept an Overweight rating on the stock.
PayPal said on Thursday said that it had promoted Archie Deskus to chief technology officer from chief information officer. She replaces Sri Shivananda, who will leave the company at the end of the year.
Write to Adam Clark at [email protected]
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