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Thursday, January 30, 2025 – BTIG analyst Lance Jessurun reaffirmed a Neutral rating on PayPal (NASDAQ:PYPL) stock, expressing caution ahead of the company’s fourth-quarter earnings report scheduled for February 4, before the market opens. The $89 billion fintech giant, which InvestingPro analysis suggests is currently undervalued, has seen 12 analysts revise their earnings estimates upward for the upcoming period. Despite PayPal’s shares gaining approximately 6% since the third-quarter earnings report, Jessurun highlighted the uncertainty surrounding the company’s growth outlook.
PayPal’s current valuation, trading at 21x earnings with a healthy 40.1% gross profit margin and 8% revenue growth over the last twelve months, is based on a forecasted free cash flow (FCF) yield of around 7% for fiscal year 2025. Jessurun considers this full given the consensus estimates for FY25 transaction margin dollars (gross profit, GP) and earnings per share (EPS) growth of 4% and 7%, respectively. While there is potential for FY25 EPS guidance to exceed expectations due to cost containment, the analyst anticipates that the GP growth outlook will likely reflect mid-single-digit growth at best, with his own model predicting 3.8% GP growth compared to the Street’s 4.0%.
During the third quarter of 2024, PayPal showed early signs of adjusting pricing to value its unbranded offerings and managed to return its branded products to positive growth. However, Jessurun believes that the majority of PayPal’s pricing and margin improvement efforts will not materialize until the second half of 2025 at the earliest.
Investors looking for insights into PayPal’s long-term growth strategies are advised to turn their attention to the company’s Investor Day on February 25, rather than the imminent earnings report. With PayPal maintaining a "GOOD" Financial Health Score on InvestingPro, which offers comprehensive analysis and 6 additional key insights about the company, Jessurun suggests that this event will likely provide more valuable details about PayPal’s future plans.
In other recent news, PayPal has been the center of significant developments. Analysts from various firms have provided their insights on the company’s performance and future prospects. KeyBanc maintains a neutral "Sector Weight" stance on PayPal, expecting the company’s initial fiscal year 2025 transaction margin dollar growth guidance to be conservative due to recent foreign exchange movements. TD Cowen analyst Bryan Bergin has raised the price target for PayPal stock to $90 while retaining a hold rating, noting that PayPal’s fourth-quarter activity had slightly exceeded expectations. Jefferies has also maintained a hold rating on PayPal, emphasizing the importance of the company’s branded Total (EPA:TTEF) Payment Volume (TPV) growth for its future success.
On the other hand, Susquehanna analysts have increased their price target on PayPal shares from $94 to $101, maintaining a positive rating due to the company’s consistent financial performance and potential for sustained mid-single-digit growth. Keefe, Bruyette & Woods (KBW) has also expressed optimism about PayPal’s ability to surpass gross profit growth expectations for 2025.
In terms of company news, PayPal’s Executive VP has recently departed, leaving with a severance package as per the company’s Executive Change in Control and Severance Plan. The company has yet to announce a successor. Lastly, PayPal is facing a lawsuit alleging racial bias in its investment program. These are the recent developments surrounding PayPal.
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