PayPal Holdings Inc. has recently delineated its 2024 outlook, indicating a year of transition, prompting one analyst to adopt a more guarded stance on the stock.
According to Daiwa Capital Markets analyst Kazuya Nishimura, it has become arduous to anticipate growth in earnings per share (EPS) for PayPal in the medium and long term until specific developments materialize.
Nishimura asserts that the company needs to demonstrate a tangible uptick in transaction-margin dollars and elucidate the positive impacts of its increased investments before meaningful bottom-line growth can transpire.
Given PayPal’s envisaged focus on executing its plans in 2024, Nishimura anticipates that it will take some time for service enhancements to materialize in earnings, potentially rendering the growth potential for EPS in the medium term difficult to discern.
As a result, he downgraded PayPal’s stock from buy to neutral on Monday, simultaneously reducing the price target from $64 to $62, with the stock closing at approximately $60 on that day.
Despite expressing the belief that there is a greater upside risk than downside risk in terms of earnings, Nishimura acknowledges PayPal’s stock as undervalued.
He notes that the company’s guidance appears conservative, leaving room for considerable potential overshooting, but currently lacks the conviction to factor in a sharp upside.
Over the past three months, PayPal shares have experienced a modest increase of about 10%. However, it is notable that the stock has undergone a significant decrease, nearly halving in value over two years.
This downward trend has prompted Nishimura to adopt a more cautious stance, downgrading the stock even as he recognizes the potential for earnings to outperform expectations.
Moreover, the broader sentiment among Wall Street analysts has shifted concerning PayPal. In February 2023, nearly 75% of analysts tracked by FactSet rated the stock as a buy.
Presently, this proportion has decreased to just over 45%, indicating a significant reduction in the stock’s bullish backing among industry experts.
As the company navigates its transitional phase in 2024, uncertainties regarding the realization of planned improvements and their subsequent impact on earnings have led to a more subdued outlook from analysts.
This reinforces the challenges PayPal may encounter in reestablishing its growth trajectory in the eyes of investors.
