PayPal's stock lands a downgrade as earnings growth gets 'difficult to envision'

By Emily Bary

The stock's bull camp among Wall Street analysts has been steadily shrinking

PayPal Holdings Inc.'s latest outlook confirmed that 2024 will be another year of transition, and one analyst is moving to the sidelines on its stock after that commentary.

It's becoming "difficult to envision" growth in earnings per share at PayPal (PYPL) over the medium and long terms until two developments materialize, according to Daiwa Capital Markets analyst Kazuya Nishimura. He thinks the company will have to show "clear growth" in transaction-margin dollars and demonstrate the benefits of its ramped investments before it can grow the bottom line.

See also: PayPal's stock slides after earnings as 'existential question' lingers

"With 2024 to be a year of plan execution, as the company says, we think it will take some time before service improvements are reflected in earnings and it will probably be challenging to discern growth potential for EPS over the medium term," he continued.

Nishimura downgraded the stock to neutral from buy Monday, while cutting his price target to $62 from $64. PayPal's stock closed Monday at about $60.

The downgrade comes even as Nishimura thinks "there is greater upside risk than downside risk" when it comes to earnings. He also deemed PayPal's stock undervalued.

"With the company's guidance looking conservative, we see considerable potential for an overshoot, but at this stage we are lacking the conviction to factor in sharp upside," he wrote.

PayPal shares are up about 10% over the past three months, though they've been cut nearly in half over a two-year span.

The stock's bull camp among Wall Street analysts has been steadily shrinking as well. Nearly 75% of those tracked by FactSet rated the stock at the equivalent of buy in February 2023. Now, just over 45% do.

-Emily Bary

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02-13-24 0929ET

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