PayPal Holdings Inc. shares have fallen out of favor with investors this year after a string of resets, but the payment giant’s management team is looking to flip the script with a series of moves intended to drive changes in the business.
The company announced Tuesday a new buyback authorization and cost-cutting plan, along with a new chief financial officer, as Electronic Arts Inc.
veteran Blake Jorgensen is taking over the role. Additionally, PayPal
confirmed that activists at Elliott Management have invested in the company, and executives will continue to cooperate with the Elliott team.
PayPal shares were surging more than 13% in premarket trading following the company’s latest results and announcements, which led some analysts to wonder whether the beaten-down name had reached a turning point.
Barclays analyst Ramsey El-Assal highlighted that while PayPal has reached the end of its CFO search process and is in the process of instituting “very large cost cuts,” the company also showed signs of financial progress as revenue accelerated throughout the second quarter and into the month of July. Additionally, PayPal is targeting operating-margin expansion.
“Given all this, we think Q2 may, in hindsight, be seen as PYPL’s pivot point toward renewed investor confidence,” Barclays analyst Ramsey El-Assal wrote.
He added that, despite PayPal’s update to its currency-neutral revenue guidance, which is now calling for growth at the low end of the company’s prior range, he saw the second-quarter report “as addressing quite a few open items that had been weighing on the stock, with future strategic direction and business trends now in clearer focus.” In El-Assal’s view, “this should help shake some investors off the sidelines.”
He has an overweight rating and a $125 price target on PayPal shares.
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D.A. Davidson’s Chris Brendler took a similar view.
“With multiple additional positives (cost cuts, big buyback, new CFO), we see compelling evidence that the bottom has already formed,” he wrote. “As a result, we’re more confident in our call that the franchise is stronger than the stock suggests and the recent [deceleration] will prove transitory.”
He rates the stock a buy with a $120 price target.
MoffettNathanson analyst Lisa Ellis urged investors not to look past financial trends that indicated PayPal was gaining momentum within the e-commerce market. She noted that the company saw growth in the high teens when it came to total payment volume for core payment processing, exclusive of eBay Inc.
volumes and peer-to-peer payments.
“[J]ust last week, Visa reported U.S. CNP volume growth – one of the better industry comps for e-commerce growth – in the high single-digits,” Ellis wrote. “These results imply that despite the challenges the management team and company have had over the past nine months, PayPal still appears to be steadily gaining share of checkout, whether through the PayPal Checkout button, Braintree, or Venmo.”
She has an outperform rating and a $120 target price on PayPal.
Other analysts stayed more cautious.
“All-else-equal, an emphasis on higher operating leverage in ’23-beyond, increased capital return, and a more narrow strategic focus are welcome developments,” wrote Jefferies analyst Trevor Williams, who rates the stock at hold with a $93 price target.
However, Williams noted that PayPal’s after-hours trading movement implied a 21-times multiple on the basis of price to his 2023 estimated earnings per share. He said that he and his team “struggle to see the next leg of multiple expansion without greater medium-term top-line visibility.”
Bernstein analyst Harshita Rawat said that PayPal’s buyback and cost-cutting moves got at the “low-hanging fruit,” but she’s now watching to see how the company executes on its strategy.
“Just like in real life, the easy win is done in our view, & the hard/real job of balancing cost cuts & reinvigorating growth begins now against a backdrop of many org changes,” she wrote.
Rawat downgraded PayPal’s shares to market perform last year amid competitive and execution concerns, and she wrote Wednesday that she sees “more limited upside” for the name, with shares “now more expensive than V/MA on like-for-like GAAP [numbers.]” She brought her price target up to $100 from $95 in her latest note.
SMBC Nikko Securities America analyst Andrew Bauch, formerly the only Wall Street analyst tracked by FactSet to hold a bearish rating on PayPal’s stock, dropped that call on Wednesday as he upgraded the shares to neutral from underperform.
“While PYPL may be one of the most exposed names in our coverage to consumer discretionary end markets, PYPL’s margin upside potential may be too significant to ignore,” he wrote, while boosting his price target to $100 from $90.
Through Tuesday’s close, PayPal shares had fallen 52% over the course of 2022, while the S&P 500
had dropped 14%.