PayPal’s Q2 Was Strong, But Valuation Has Some Analysts Concerned

Courtesy of Benzinga.

Expectations heading into Paypal Holdings Inc (NASDAQ: PYPL)’s earnings report on Wednesday were “elevated,” but the company certainly delivered — total payment volume, revenue, and non-GAAP earnings per share exceeded what analysts at Stifel were expecting. But at the same time, the firm’s Scott Devitt maintains a Hold rating on PayPal’s stock with a price target boosted from $51 to $61, which implies nearly zero upside from current levels.

PayPal’s earnings report confirmed it is “making good progress” on many initiatives to boost its business, the analyst continued. For instance, customer choice is exceeding expectations as 13 million customers in the U.S. have opted-in to the platform. The company is also seeing a reduction in churn along with improved customer satisfaction levels and engagement.

Meanwhile, PayPal’s Choice will be introduced to new markets later this year and the company also inked a deal with China’s Baidu Inc (ADR) (NASDAQ: BIDU), which will allow for consumers inside of China to transact with PayPal’s merchants outside of China. Also, the company’s Pay with Venmo feature will be available across millions of merchants this year, Devitt added.

Despite the fact that main takeaway from the earnings report is that PayPal is “well positioned for growth” given its ecosystem expansion across multiple verticals, expectations for growth are already reflected in the stock, the analyst emphasized. In fact, the stock’s valuation has expanded ahead of the credit card networks which accurately ” reflect the growth opportunity.”

Baird Is Bullish

PayPal’s solid second-quarter earnings report prompted Baird’s Colin Sebastian to maintain an Overweight rating on the stock with a price target boosted from $59 to $65.

PayPal demonstrated “impressive growth” in its report across most key metrics, Sebastian argued in a research report. This reflects the many “promising trends” ahead for the company, including user growth, engagement, improving execution and disciplined cost controls.

Looking forward the analyst expects incremental upside opportunities coming from PayPal’s international expansion, monetization of Venmo, and an “asset-light” credit strategy, Sebastian argued. Moreover, the company won’t shy away from pursuing new strategic partnerships when appropriate while simultaneously maintaining a “disciplined” capital allocation strategy.

Bottom line, despite an already 30-percent gain in PayPal’s stock since April, investors should be “opportunistic buyers” given the many ongoing trends in e-commerce, new partnerships and other catalysts that will spur growth.

Related Links:

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