On Tuesday, Macquarie maintained an Outperform rating on shares of PayPal Holdings Inc . (NASDAQ:PYPL), currently trading at $91.30 with a market cap of $91.53 billion, and raised its price target to $115 from the previous $95.
The adjustment reflects the firm's optimism about the company's foray into the cryptocurrency space with its stablecoin, PYUSD, which leverages the universality of the Ethereum and Solana blockchains. According to InvestingPro analysis, PayPal's stock appears to be slightly undervalued based on their proprietary Fair Value calculations.
The analyst from Macquarie highlighted that PYUSD's launch in August 2023 initially received a muted response due to an unfavorable regulatory environment in the United States concerning cryptocurrencies. However, the outlook is changing with the potential appointment of a pro-crypto Securities and Exchange Commission (SEC) Chair and a former PayPal executive as a US crypto tsar.
The analyst noted that regulatory frameworks for stablecoins are already live in Japan and Singapore, which may indicate a trend towards broader adoption. InvestingPro data shows PayPal maintaining a strong financial health score, with robust profitability metrics and a healthy current ratio of 1.25.
PayPal, as a listed company, stands out among its unlisted competitors such as Circle and iFinex, due to its established product ecosystem that could support PYUSD's growth. The price target increase from $95 to $115 is also justified by the firm's decision to raise its target multiple from 19.5x to 23x, which is still at the lower end of the pre-COVID range when the company's growth rates were higher.
The Macquarie analyst anticipates that the progress in stablecoin development and adoption could positively impact PayPal's stock price and potentially its transaction volumes over time. The upgraded price target reflects this confidence in the company's strategic direction and the potential for PYUSD to contribute to PayPal's growth.
In other recent news, PayPal Holdings Inc. has been the focus of several analyst firms. Wolfe Research upgraded PayPal from Peerperform to Outperform, lauding the company's streamlined focus and effective expense management.
RBC Capital and Barclays (LON:BARC) have maintained their Outperform and Overweight ratings, respectively, with RBC Capital highlighting PayPal's strategy to align prices with the value provided. Conversely, Bernstein maintained its Market Perform rating, citing a balance of challenges and opportunities for the company.
PayPal's recent developments include pricing updates for U.S. merchants, set to take effect in 2025. These changes, particularly an increase in fees for its Pay Later service, are expected to contribute to the company's revenue growth.
The company also reassured its comfort with previously issued guidance, anticipating mid-single-digit growth for the quarter, during a presentation at the UBS Global Technology and AI Conference.
PayPal's strategy to leverage its operations includes plans to increase non-transaction operating expenses by a low single-digit percentage next year. The company is also expected to exceed financial forecasts as it continues to innovate with its branded checkout options, implements value-based pricing on Braintree, and further monetizes Venmo.
Despite potential uncertainties and competitive challenges, PayPal maintains a strong financial health score, with management actively buying back shares and maintaining a solid return on equity.
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