PayPal Price Target Cut to $129 at Morgan Stanley, While Mizuho Makes Case for $150
2022.06.02 17:26
PayPal (PYPL) Price Target Cut to $129 at Morgan Stanley, While Mizuho Makes Case for $150
By Sam Boughedda
Morgan Stanley analyst James Faucette lowered the firm’s price target on PayPal (NASDAQ:PYPL) to $129 from $137 on Thursday, maintaining an Outperform rating on the stock.
The analyst said they have now lowered PYPL estimates as their internet team now forecasts 8% eCommerce growth in 2022 from 12% previously due to “growing macro weakness along with sector-specific negative signals.”
“While near term could be choppy, we still see PYPL outpacing eCommerce growth going forward,” he added.
Faucette said the company continues to face a challenging e-commerce environment, with PayPal revenue growth falling in recent quarters as eCommerce faces headwinds from inflation, a lessening Omicron impact, and difficult comps due to stimulus.
“Recession risk is now growing as well, with our macro team’s models suggesting a 35% chance of a recession vs. ~5% at the start of the year. During the recent earnings season, tech companies have expressed increasing caution around online ad spend and signaled cost/headcount reductions, while retailer earnings have reiterated pressure on the lower end consumer,” Faucette wrote.
However, Morgan Stanley still believes PayPal will outperform underlying e-commerce growth, and the company’s re-focused investments can help address issues around branded payouts.
In contrast to Morgan Stanley’s cautious view and price target cut, Mizuho analyst Dan Dolev was more positive about the stock in his research note Thursday.
Dolev said “detailed margin build shows potential for >1,000bps of GAAP margin expansion by focusing on core checkout while also reducing opex spend closer to peer levels. We see potential for $25-30bn of cumulative FCF by 2026, driving $7-8 of GAAP EPS. At 20x (in line with PYPL’s historical three-year forward P/E multiple), this could imply ~$150 share price.”
“Our detailed peer opex analysis vs. Visa (NYSE:V), Mastercard (NYSE:MA), and Adyen (OTC:ADYEY) shows that PYPL may be spending too much money on sales & marketing and research & development. We calculate that refocusing on core checkout and lowering S&M and R&D spend could drive more than 1,000bps points of GAAP operating margin expansion, from an estimated ~30% in 2021 (using revenue less transaction costs) to more than ~40% by 2026,” he added.
PayPal shares climbed 2.3% in early Thursday trading.
