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On Wednesday, Baird analyst Colin Sebastian adjusted the price target for PayPal Holdings Inc . (NASDAQ:PYPL) to $78, a decrease from the previous target of $95, while maintaining an Outperform rating for the company's shares. The revision comes as a response to several factors that could impact PayPal's financial performance. The stock, currently trading at $57.41, has experienced significant pressure, falling nearly 30% over the past six months. According to InvestingPro analysis, the stock appears undervalued compared to its Fair Value estimate.
Sebastian noted that, similar to Shopify (NASDAQ:SHOP) and eBay (NASDAQ:EBAY), PayPal benefits from being a high-margin, asset-light company that does not engage in inventory risk. These characteristics are particularly advantageous during times of economic downturns and when tariffs affect the broader economy. The company maintains strong profitability with a gross margin of 40.5% and generated $6.8 billion in free cash flow over the last twelve months. Despite these strengths, PayPal's reliance on e-commerce, which includes a significant portion of discretionary and cross-border purchases, along with exposure to the travel sector, introduces certain vulnerabilities. Approximately 10-15% of PayPal's Total (EPA:TTEF) Payment Volume (TPV) is attributed to these types of transactions. For deeper insights into PayPal's financial health and growth prospects, InvestingPro subscribers can access comprehensive analysis and 12 additional ProTips.
The analyst also pointed to the potential increase in credit risks as a reason for the adjustment in PayPal's financial outlook. Currently generating annual revenue of $31.8 billion with a 6.8% growth rate, PayPal maintains a solid financial position with a current ratio of 1.26. Consequently, Baird has revised its 2025 revenue estimate for PayPal downward to $32.6 billion, which represents a 2.6% year-over-year growth, from the prior estimate of $32.8 billion. Furthermore, the pro-forma operating income estimate has been reduced to $6.46 billion, equating to a 19.8% margin, from the earlier forecast of $6.51 billion.
The new price target of $78 is backed by a combination of valuation methods, including a 14 times multiple of the firm's estimated 2026 earnings per share (EPS), an 11 times multiple of the 2026 estimated enterprise value to EBITDA (EV/EBITDA), and a discounted cash flow (DCF) analysis. These metrics are aligned with the mean valuations for the e-commerce and services sectors, which typically range between 10 to 30 times forward P/E and approximately 7 to 16 times forward EV/EBITDA. Sebastian's assessment reflects a cautious approach to PayPal's stock valuation amidst a changing economic landscape.
In other recent news, PayPal Holdings, Inc. reported several notable developments. Analysts at Susquehanna maintained a Positive rating on PayPal but lowered their price target to $94, citing macroeconomic volatility. Meanwhile, Evercore ISI initiated coverage with an In Line rating and set a price target of $65, highlighting challenges due to subpar execution and macroeconomic factors. Mizuho (NYSE:MFG) Securities reiterated an Outperform rating with a $96 target, expressing confidence in PayPal's market position despite competitive pressures. On the operational front, PayPal expanded its cryptocurrency offerings by adding Chainlink and Solana to its digital wallet services, responding to user demand for more diverse options. Additionally, Rodney C. Adkins, a long-serving member of PayPal's Board of Directors, announced his retirement planned for June, marking a significant change in the company's board composition. These developments reflect PayPal's strategic adjustments and ongoing efforts to navigate a challenging economic landscape.
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