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UBS raises PayPal shares target, notes improved gross profit trends

EditorEmilio Ghigini
Published 05/01/2024, 06:14 PM
© PayPal PR
PYPL
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On Wednesday, UBS updated its outlook on PayPal Holdings Inc (NASDAQ:PYPL) shares, raising the price target on the company's shares to $71 from the previous $63. The firm has maintained a Neutral rating on the stock. The adjustment comes following PayPal's recent change in financial reporting methodology, which was presented during the Q4 2023 earnings call.

The new price target is based on an approximately 15.5 times multiple applied to the projected 2025 non-GAAP earnings per share (EPS) of $4.55, which is an increase from the prior estimate of $4.41. UBS's revision reflects a change in the valuation multiple from the previous 14 times. This change is attributed to better gross profit trends within PayPal's core business operations.

UBS's revised multiple suggests a medium-term growth (MTG) ratio of around 1.2 times, up from the previously estimated 1.0 times. This updated ratio is slightly above the median of approximately 0.9 times observed among PayPal's peers.

The firm's increased earnings estimates for 2025 are influenced by PayPal's updated guidance, which now fully accounts for stock-based compensation (SBC) and related payroll taxes.

The financial services firm elaborates on the rationale behind the updated figures, indicating that the improved gross profit trends are a significant factor for the heightened expectations. PayPal's shift to fully expense SBC and associated payroll taxes has brought about a more conservative and transparent approach to its financial reporting, aligning with industry standards.

InvestingPro Insights

Following the recent price target update from UBS, real-time data from InvestingPro provides additional context for investors considering PayPal Holdings Inc (NASDAQ:PYPL). The company currently boasts a market capitalization of $71.5 billion and trades at a P/E ratio of 17.69, which adjusts to 18.31 based on the last twelve months as of Q4 2023. This valuation metric is particularly relevant given that PayPal is trading at a low P/E ratio relative to near-term earnings growth, an InvestingPro Tip that underscores its potential for investors seeking value.

PayPal's financial health is further evidenced by its revenue growth of 8.19% over the last twelve months as of Q4 2023, reflecting a solid performance in the financial services industry. Additionally, the company has experienced a significant price uptick of 31.48% over the last six months, which aligns with another InvestingPro Tip highlighting PayPal as a prominent player in its sector. These metrics suggest a strong market position and a positive outlook for the company's stock performance.

For investors seeking more in-depth analysis, there are additional InvestingPro Tips available, which can be accessed with the coupon code PRONEWS24 for an extra 10% off a yearly or biyearly Pro and Pro+ subscription. With this, investors can gain a comprehensive understanding of PayPal's prospects and make informed decisions based on a wide range of expert insights.

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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