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Bernstein reiterates Market Perform on PayPal stock, cites push-pull dynamics

EditorAhmed Abdulazez Abdulkadir
Published 12/13/2024, 12:48 AM
PYPL
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On Thursday, Bernstein, a financial advisory group, maintained its Market Perform rating on PayPal (NASDAQ:PYPL) with a steady price target of $80.00. Currently trading at $90.75, near its 52-week high of $93.66, the stock has shown remarkable strength with a 54% return over the past year.

According to InvestingPro analysis, PayPal appears slightly undervalued based on its proprietary Fair Value model. The stock's current trajectory has been deemed uncertain by the firm due to conflicting factors influencing its performance.

On one side, there are concerns about the competitive pressures on PayPal's main revenue-generating features. On the other, potential positives could arise from the company's share buybacks, operational expenditure reductions, and new monetization efforts.

The firm had previously downgraded PayPal in October 2024 after a brief upgrade in late July 2024. The upgrade was a tactical decision, spurred by the company's improved product development and execution under new leadership, as well as signs of growing gross profit and an appealing valuation at the time.

InvestingPro data shows the company maintains a healthy 40.1% gross profit margin and has achieved 8% revenue growth in the last twelve months. However, the recent stock price performance has not provided sufficient confidence to warrant an increase in the target price.

PayPal is facing a delicate balance of challenges and opportunities. The intense competition threatens its primary source of income, often referred to as the "cash-cow button." However, the company is also experiencing positive momentum from cost-saving measures and incremental benefits from various monetization initiatives.

With an overall "GOOD" Financial Health score from InvestingPro, the company demonstrates strong fundamentals, including management's aggressive share buyback program and robust cash flow generation. These initiatives include a new rewards and cards strategy, the Fastlane feature, increased Venmo monetization, and an advertising platform.

The analyst highlighted that the range of long-term outcomes for PayPal is broader than usual, prompting a cautious stance. Trading at a P/E ratio of 21.5x and a PEG ratio of 0.81, the stock shows interesting value characteristics. For deeper insights into PayPal's valuation and growth prospects, including 8 additional ProTips and comprehensive financial analysis, investors can access the full Pro Research Report on InvestingPro.

Bernstein is awaiting clearer indications of the long-term trajectory of PayPal's core features, the impact of the company's new strategies, and the second-order effects of recent pricing changes by Braintree, a PayPal service, before considering any rating adjustment.

In other recent news, PayPal Holdings Inc (NASDAQ:PYPL). has announced several pricing updates for U.S. merchants, set to take effect on January 13, 2025. The pricing changes include an increase in fees for its Pay Later service and adjustments for Alternative Payment Methods and Advanced Credit and Debit Card Payments. Barclays (LON:BARC) maintained its Overweight rating on PayPal shares following this announcement.

In addition, PayPal has reassured its comfort with previously issued guidance, anticipating mid-single-digit growth for the quarter, during a presentation at the UBS Global Technology and AI Conference. The company also launched new initiatives and reported strong engagement with U.S. consumers.

RBC Capital Markets has highlighted PayPal as one of its top five investment ideas for fiscal year 2025. PayPal also recently resolved a system issue impacting multiple products within its production environment, demonstrating its commitment to service continuity and customer support.

Jefferies maintained its Hold rating on PayPal shares, noting potential adjustments to the company's revenue projections and potential transaction or credit losses. Despite these potential headwinds, PayPal showed significant growth in its third-quarter earnings call, leading the company to raise its full-year guidance for transaction margin dollars and non-GAAP EPS.

Analysts from Phillip Securities have upgraded their stance on PayPal from a Buy to an Accumulate rating, reflecting confidence in the company's strategic direction and product innovations.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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