Investors are in wait-and-see mode when it comes to PayPal Holdings Inc.’s stock, but perhaps they won’t have to wait too long for positive developments to manifest.
That’s the view of Barclays analyst Ramsey El-Assal, who reiterated his upbeat stance on PayPal
PYPL,
in a Thursday note to clients.
“[B]ecause management has signaled quite loudly that Q3 transaction margins will face the most pressure before finding stability/improvement in Q4, we see investors largely waiting on the sidelines at this point,” he wrote. “We think this may be a mistake.”
Don’t miss: Block’s stock could double, analyst says, as an exciting milestone may be in view
El-Assal thinks PayPal will see its transaction margins “meaningfully improve” in the fourth quarter and into fiscal 2024, meaning that the stock features a “compelling entry point” despite the fact that upcoming third-quarter results are unlikely to be stellar.
“The PYPL investment case should strengthen after we get over the Q3 hump,” he said, as transaction margins could benefit from acceleration in branded checkout volumes, the lapping of factors like foreign-exchange hedges, contributions from new products and a slower growth rate for the unbranded checkout business that has been a drag on recent margins.
In El-Assal’s view, while the unbranded business certainty has weighed on margins, Wall Street has been underappreciating the extent to which more “transient” issues, including hedging gains and merchant cleanup fees, have also had an impact.
PayPal’s upcoming earnings call will give investors a chance to hear from Alex Chriss, who recently took over as chief executive. “In Q3, investors will be keen on understanding Mr. Chriss approach going forward — and whether any new strategic shifts become apparent,” El-Assal said.
He has an overweight rating and an $88 target price on PayPal shares.
See also: PayPal’s stock has ‘catalysts aplenty’ — but this analyst still feels cautious
Read the full article here