- Analyst ups price target to $140 on ‘improving outlook’
- Expectations reset leave room for outperformance
- Operating margins of 14% in 2021 seen rising
Analysts are becoming increasingly positive about the improving prospects for PayPal (PYPL:NASDAQ) after an investor conference earlier this week (12 Sep).
Deutsche Bank went as far as to raise the price target on the online payment giant’s stock by 23%, from $114 to $140, reflecting PayPal’s improving outlook. PayPal shares are expected to open nearly 2% higher when trading reopens on Wall Street later today at $96.77.
The investment bank’s analyst argues that PayPal’s new reset expectations, after the last guidance cut, ‘finally look achievable.’ The appointment of Blake Jorgensen as chief financial officer earlier this month, while involvement of Elliott Investors should help the company become more disciplined on the cost side too, the note to clients explained.
‘While it is clear that PayPal will still need to continue gaining share and deepening user engagement, we believe the KPI benchmarks the company must hit to meet updated guidance are more realistic than before,’ the note read.
COST CUTS TO BOLSTER MARGINS
The analyst sees upside potential to the bank’s current adjusted operating margins amid cost reductions and operating expenses savings. ‘With more reasonable top-line guidance, easing ecommerce comparatives starting in the third quarter 2022, and new cost-cutting initiatives, we believe PayPal is now fully on a path to recovery so long as it can deliver on its new, more achievable expectations,’ he concluded.
Last year, to 31 December 2021, PayPal reported operating margins of 14%.
Analysts from Bank of America and Goldman Sachs were also encouraged by what they heard from the company this week. At the event, CEO Dan Schulman said that revenues are tracking in line with guidance of 12% constant-currency growth, and earnings per share is trending a bit ahead of guidance of $0.94 to $0.96, which BofA believes should be positive for shares.
Goldman Sachs analysts spelled out that Q3 EPS is ‘pacing better-than-expected versus prior guidance on better cost savings,’ on in-line revenues.
PayPal has seen its shares halve this year as rising interest rates and high inflation put the pressure on tech stocks. Investors had also worried about the possibility that PayPal could embark on an acquisitions drive that could undermine the business.
