On Wednesday, BMO Capital adjusted its outlook on PayPal Holdings Inc . (NASDAQ:PYPL), increasing the price target to $65.00 from the previous $64.00, while maintaining a Market Perform rating on the stock. The firm cited modest potential for upside to PayPal's earnings per share (EPS) guidance for 2024 but remained cautious about the company's ability to significantly boost gross profit growth in the medium term.
Although there are signs that new initiatives by PayPal are gaining incremental traction, these efforts have not yet led to a marked improvement in gross profit growth. BMO Capital's analyst pointed out that while there could be some positive movement in PayPal's EPS guidance for 2024, suggesting a flat to slightly negative EPS growth in the second half of the year, there are risks on the horizon.
Specifically, the analyst noted the upcoming Consumer Financial Protection Bureau (CFPB) regulation on late fees and the possibility of increased investment spending by PayPal during a transition year as factors that could impact the company's financial performance.
The revised price target of $65 is based on an approximately 15 times price-to-earnings (P/E) ratio of PayPal's trailing twelve-month (TTM) earnings, projected for the first quarter of 2026. This target reflects the firm's evaluation of PayPal's valuation metrics and future earnings potential.
Despite the slight increase in the price target, BMO Capital's stance on PayPal remains measured, with the Market Perform rating indicating that the stock is expected to perform in line with the market or sector averages soon. The firm's analysis suggests that while PayPal may see some EPS growth, the challenges mentioned could temper the pace of its financial gains.
InvestingPro Insights
As investors consider BMO Capital's recent analysis of PayPal Holdings Inc. (NASDAQ:PYPL), additional insights from InvestingPro may provide a broader perspective on the company's current financial health and stock performance. According to real-time data from InvestingPro, PayPal's market capitalization stands at a robust $71.5 billion, reflecting its significant presence in the financial services industry.
One notable InvestingPro Tip highlights that PayPal's management has been actively engaged in share buybacks, a move that can signal confidence in the company's future and potentially enhance shareholder value. Furthermore, the data shows that PayPal is trading at a P/E ratio of 17.69, which suggests the stock is trading at a low price relative to its near-term earnings growth, as per another InvestingPro Tip. These metrics could indicate that PayPal's stock might be undervalued, offering a potentially attractive entry point for investors.
The real-time metrics also reveal that PayPal has experienced a large price uptick over the last six months, with a 31.48% total return, underscoring the company's strong recent performance in the market. Additionally, the company has maintained a solid gross profit margin of 39.59% over the last twelve months as of Q4 2023, which could be a reassuring factor for investors concerned about BMO Capital's cautious stance on gross profit growth.
For those interested in more in-depth analysis and additional insights, InvestingPro offers a wealth of information, including six more InvestingPro Tips for PayPal. To access these tips and enhance your investment strategy, visit https://www.investing.com/pro/PYPL and use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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