On Thursday, Morgan Stanley made a notable adjustment to its stance on eBay Inc. (NASDAQ:EBAY) stock, upgrading the online marketplace from Underweight to Overweight. Accompanying this upgrade, the firm significantly increased the price target for eBay's stock to $62.00, a substantial rise from the previous target of $35.00.
The adjustment comes as Morgan Stanley recognizes eBay's strategic shift towards site-wide horizontal solutions and the integration of general artificial intelligence innovations. The firm anticipates these changes will contribute to a modest growth in Gross Merchandise Volume (GMV) and adjusted EBIT, projecting a compound annual growth rate (CAGR) of 1% and 5% respectively from 2023 to 2026.
Morgan Stanley highlighted eBay's potential to return to positive FXN GMV growth even in a challenging economic environment, which could bolster investor confidence in the company's medium-term growth prospects. This turnaround in growth is expected to potentially occur ahead of schedule, possibly in the first half of 2024.
The firm also pointed out that eBay currently trades at roughly a 35% discount to its peer Etsy (NASDAQ:ETSY) on 2025 enterprise value to EBITDA (EV/EBITDA) multiples. Morgan Stanley suggests that eBay's stock could experience multiple expansion if the company successfully executes its strategic initiatives.
The new price target of $62.00 is based on an EV/EBITDA multiple of approximately 8.8 times eBay's projected 2025 earnings before interest, taxes, depreciation, and amortization.
InvestingPro Insights
Morgan Stanley's upgrade of eBay Inc. (NASDAQ:EBAY) to Overweight with an increased price target of $62.00 aligns with several positive metrics and InvestingPro Tips that highlight the company's financial health and market position. Notably, eBay has been actively repurchasing shares, which is often a sign of management's confidence in the company's value. Furthermore, eBay's financial stability is underscored by its position of holding more cash than debt on its balance sheet, and its impressive gross profit margins of 71.98% over the last twelve months as of Q4 2023.
The company's commitment to shareholder returns is evident through a high shareholder yield and a history of raising its dividend for 5 consecutive years, with a notable dividend growth of 22.73% in the same period. Additionally, eBay's liquid assets exceed its short-term obligations, providing financial flexibility. The company's stock has also shown strong returns over the last three months, with a 21.88% increase, and analysts predict profitability for the year.
InvestingPro data supports the optimistic outlook, with eBay's market capitalization standing at $25.62 billion, and a Price / Book ratio of 4.0, indicating a potentially higher valuation by the market. The P/E ratio of 9.5, coupled with a PEG ratio of just 0.03, suggests that eBay's earnings growth could be undervalued. For investors seeking further analysis, there are additional InvestingPro Tips available on eBay, providing deeper insights into the company's performance and potential. To access these tips and more, consider using the coupon code PRONEWS24 for an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro.
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