BMO Capital Markets upgraded PayPal to outperform from market perform Monday, saying the stock’s drop — 33% in the last six months — was overdone.
“We believe PYPL faces uncertainty regarding the impact of competition, macroeconomic trends, and business mix on growth and margins,” BMO analyst James Fotheringham wrote in a commentary cited by CNBC.
“However, our growth-margin sensitivity analysis implies valuation risks are now skewed to the upside.”
And why is that?
“PYPL is the preferred digital wallet option for online merchants [excluding Amazon], offering a seamless and secure check-out experience for consumers,” Fotheringham said.
“We expect PYPL will continue to grow its volumes above the industry rate (global e-commerce ex-AMZN), with potential upside risk from Venmo, [buy now, pay later], Super-App, [point of sale], and partnership monetization efforts.”
Headwinds remain for the short term, but 2023 and beyond look good, Fotheringham said.
PayPal recently traded at $195.35, up 4%. He cut his price target to $224 from $278 to reflect recent market activity.
Morningstar analyst Brett Horn puts fair value at $151 for PayPal.
He reverses Fotheringham’s short- and long-term views.
“In the near term, few payments companies are as well-positioned as PayPal,” Horn wrote in November.
“Longer-term, though, the picture is less clear, and we see a mix of competitive opportunities and threats that create a fairly wide range of outcomes.
“PayPal remains a somewhat unique player within the payments space. We think this remains its key strength, but its position on both the merchant and consumer side could be challenged over the long run.”