Opinions
John Zechner
PayPal Holdings Inc.
PYPL-Q
PAST TOP PICK
Dec 02, 2024
Stock price when the opinion was issued
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He called up a five year chart to look at the bigger picture pattern. He likes the cup formation with a trend down and then trending up but not aggressively. The lows and highs are getting higher. It is not overbought. There are enough fundamentals that the stock could do well.
Buy 27 Hold 25 Sell 2
We like that the financial payment company is trading at 13x earnings and supporting a 20% ROE. Cash reserves are growing, while the company aggressively buys back shares and debt is retired. We recommend setting a stop-loss at $57, looking to achieve $94 — upside potential of 32%. Yield 0%
(Analysts’ price target is $94.29)The company has some challenges, no doubt, but these are starting to be reflected in the valuation, now at just 13X earnings. EPS did beat estimates in the Q1, by 15%. PayPal is making progress with sustainable transaction-margin dollar gains, up 7% in 1Q, driven by branded checkout, Venmo and a deceleration in Braintree. The EPS beat in 1Q and maintained 2025 guidance of high-single-digit adjusted EPS gains leave room for absorbing tariff pain and allow for strategic reinvestment in growth initiatives in 2025. Adjusted operating margin widened 270 bps sequentially, paving the way for further efficiency gains. Despite fading interest-income tailwinds and slowing unbranded volume gains (2% FX neutral in 1Q), higher-margin branded transaction growth remains steady (6%). PYPL plans to buy back $6 billion of shares in 2025, with $6-$7 billion in free cash flow, after 1Q repurchases of $1.5 billion. Exposure to China is limited to under 2% of volume. While still not a favourite of ours, we think there is enough here at the right valuation now to give it some more time.
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We reiterate PYPL, a leader in online payment systems, as a TOP PICK. The company is introducing AI into its platform for payments that could well be a game changer and renew their position as the market leader. It trades at 15x earnings (half its historical valuation), 3.2x book and supports a ROE of 22%. Cash reserves are once again growing while shares are aggressively bought back. We continue to recommend a stop at $57, looking to achieve $81 -- upside potential of 18%. Yield 0%
(Analysts’ price target is $80.94)
Buying value in technology is often a misstep, but this one came through. Has resurrected growth in a few areas. Venmo has helped. Had a nice move, so he took his $$ off the table.