Barclays analyst Ramsey El-Assal predicts a significant recovery in PayPal (NASDAQ:PYPL)'s transaction margins following a dip in the third quarter of 2023, and extending into the fiscal year 2024. This forecast comes despite an anticipated underperformance in the upcoming third-quarter results.
The expected rebound is primarily attributed to an increase in branded checkout volumes and the launch of new products. Additionally, a slowdown in the growth of PayPal's unbranded checkout business, which has been negatively impacting margins, is also seen as a contributing factor to the projected recovery.
According to InvestingPro data, PayPal's market capitalization stands at 61.87B USD with a P/E ratio of 15.65, which is relatively low considering its near-term earnings growth. This aligns with one of the InvestingPro Tips that the company is trading at a low P/E ratio relative to near-term earnings growth. In addition, the company's revenue growth for LTM2023.Q2 stands at 8.21%.
El-Assal further highlights that Wall Street may be underestimating transient issues that have affected PayPal's recent performance. These include foreign-exchange hedges and merchant cleanup fees, which are expected to lap soon and consequently aid future margin improvement.
The forthcoming earnings call will provide insights into new CEO Alex Chriss's strategic direction and potential shifts within PayPal. This comes at a time when investors are keen to understand how the new leadership will shape the company's future. As per InvestingPro Tips, the company's management has been aggressively buying back shares, which can be seen as a sign of confidence in the company's future prospects.
In his report, El-Assal maintains an overweight rating on PayPal shares, indicating that he believes they offer good value at current prices. He considers the current market situation a compelling entry point for investors with an $88 target price on the stock. Notably, the company's stock is trading near its 52-week low according to InvestingPro data, which further strengthens the case for investment at this point. For more insights and tips like these, consider exploring the InvestingPro product which offers additional tips here.
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