PayPal rallies in trading debut; Nomura and JPMorgan bullish on the stock
PayPal rallied over 5% as it made its stock market debut after officially splitting from Ebay last Friday.
PAYPAL HOLDINGS-WI
$64.10
12:54 25/04/24
Nomura initiated coverage of the stock with a ‘buy’ rating and $46.00 price target on Monday, saying the “PayPal story is all about optionality”.
It said sources of upside not discounted in the current share price include the potential to enjoy around 10% earnings per share upside from upcoming interchange rate reductions in Europe. In addition, it pointed to the company’s potential to team up with new partners that were previously off limits to PayPal as an eBay subsidiary.
Nomura also noted a take-out premium, as PayPal would be a desirable acquisition candidate.
“The most likely scenario (65% probability, in our view) is that PayPal shares will hover around current levels and experience only modest appreciation over the next year; however, we think there is a reasonable chance (25% probability, by our math) that PayPal will figure out a way to penetrate the physical point of sale, which we estimate could lead its market cap to more than double.”
The bank said PayPal is well positioned to achieve its financial targets over the next couple of years, suggesting that the shares should hold the line on valuation while offering the potential for meaningful upside to the extent that any of its sources of optionality pay off.
JPMorgan Cazenove was also bullish on the stock, starting coverage at ‘overweight’ with a $48.00 price target.
“As an independent public company, PayPal immediately becomes one of the more exciting stories in our payment processing coverage universe,” it said, adding that it checks several key boxes on investors’ scorecards.
The bank pointed to mid-teen organic revenue growth, which is more than 40% faster than its broader coverage universe, high relative exposure to digital commerce, one of the fastest growing areas in payments, and strategic value based on strong brand and global scale.
At 1520 BST, shares were up 5.5% at $40.48.