Tuesday, Daiwa Securities adjusted its stance on PayPal Holdings Inc . (NASDAQ:), shifting the rating from Outperform to Neutral and modifying the price target to $62 from the previous $64. The revision reflects a new valuation based on updated earnings per share (EPS) estimates, factoring in stock-based compensation expense from the first quarter of the fiscal year 2024.
The analyst cited PayPal’s conservative guidance for the fiscal year 2024 as a reason for the reduced consensus estimate. Despite acknowledging that the shares appear undervalued when considering valuation metrics the firm sees challenges in predicting the medium to long-term growth in EPS. The firm believes it will be difficult to identify a clear growth path for transaction margin dollars and to see the benefits of increased investments until they begin to materially impact earnings.
Daiwa Securities pointed out that 2024 is expected to be a pivotal year for PayPal, focusing on executing its strategic plan. However, the firm anticipates that it will take time for service improvements to translate into earnings growth, making it tough to gauge the potential for EPS growth in the medium term. As a result, the investment rating has been lowered to Neutral.
The firm is looking for clear signs of growth and the successful implementation of PayPal’s investments before reconsidering its investment rating. The analyst emphasized that once there is a return to a clear growth trajectory for transaction margin dollars and the benefits from ramped-up investments are evident, PayPal could potentially see strong profit growth. Daiwa Securities intends to monitor the company’s performance closely, awaiting the right moment to possibly revise its investment opinion.
As investors digest the recent rating adjustment by Daiwa Securities for PayPal Holdings Inc. (NASDAQ:PYPL), it’s essential to consider the broader financial landscape of the company. InvestingPro data shows a market capitalization of $64.4 billion, reflecting the company’s significant presence in the financial sector. Despite the cautious outlook from analysts, PayPal’s Price-to-Earnings (P/E) ratio stands at a competitive 15.58, suggesting a potentially undervalued stock relative to near-term earnings growth—an InvestingPro Tip that could interest value investors.
Moreover, PayPal’s revenue growth over the last twelve months as of Q4 2023 has been positive at 8.19%, indicating a steady…