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On Tuesday, Bernstein analysts revised their outlook on PayPal Holdings Inc . (NASDAQ:PYPL), reducing the stock’s price target from $94 to $80, while maintaining a Market Perform rating. The adjustment comes amid a period of significant transformation and competition within the digital payments sector. According to InvestingPro data, PayPal’s stock has declined nearly 8% in the past week and 16% over the last six months, reflecting market uncertainties. Despite these challenges, the company maintains its position as a prominent player in the Financial Services industry, with a substantial market capitalization of $64.5 billion.
The analysts’ commentary highlighted PayPal’s potential to either become a highly profitable investment or a structural short over the next three years. However, they expressed uncertainty about which outcome is more likely, leading to the decision to maintain a Market Perform rating on what they describe as a "battleground stock." InvestingPro analysis indicates the company maintains a GOOD overall financial health score, with particularly strong marks in profitability metrics. Subscribers can access 8 additional exclusive ProTips and comprehensive financial analysis through the Pro Research Report.
PayPal’s recent investor day presentation outlined an ambitious vision for the company’s future as a comprehensive commerce platform, with targets for 2027 that exceed consensus estimates and long-term goals. The company’s leadership is optimistic about PayPal’s prospects, citing its strong brand presence with PayPal, Venmo, Braintree, and dominance in the small and medium-sized business (SMB) sector. They also note that execution issues under previous management are being addressed by new leadership.
Despite this, Bernstein analysts find it challenging to assign a probability of success for PayPal’s strategy, citing the need to observe key performance indicators (KPIs) from upcoming product rollouts. Moreover, they point out that the competitive landscape is rapidly evolving with new checkout experiences that lack the technological debt or legacy integrations of existing platforms. Additionally, the structure of eCommerce is undergoing changes, consolidating into platforms and marketplaces.
The analysts suggest that it would be overly simplistic to dismiss PayPal’s potential, especially considering the company’s initiatives to increase transaction margin (TM) dollars and its strategy to differentiate itself as a commerce enablement company, rather than just a checkout button. They note that PayPal’s valuation is not demanding, trading at approximately 12 times the projected 2026 earnings per share (EPS), or 10 times excluding cash, with a free cash flow (FCF) yield of 10%. Current InvestingPro metrics show the stock trading below its calculated Fair Value, with a P/E ratio of 16.2x and a healthy revenue growth of 6.8% over the last twelve months. The company’s robust gross profit margin of 40.5% and strong cash flow generation suggest significant operational efficiency.
In other recent news, PayPal Holdings, Inc. has issued $1.5 billion in senior notes across three series, with maturity dates in 2028 and 2035. These notes are part of an existing indenture agreement and include both floating and fixed-rate options. Meanwhile, Wolfe Research has adjusted its outlook on PayPal, lowering the stock price target from $90 to $85, citing macroeconomic concerns that may impact consumer behavior and PayPal’s growth expectations. Despite the revision, Wolfe Research maintains an Outperform rating on the shares. Bernstein, on the other hand, has maintained its Market Perform rating with a $94 price target, emphasizing the importance of PayPal’s international branded business for future growth. Additionally, PayPal has appointed Joy Chik to its Board of Directors, bringing her extensive experience in technology and AI to the company. This appointment aligns with PayPal’s focus on integrating AI into its services. Lastly, the opening of Apple (NASDAQ:AAPL)’s NFC chip to third-party apps presents new opportunities for PayPal and other digital wallets to expand their payment functionalities.
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