PayPal Holdings Inc. is expected to face a year of transition in 2024, according to analyst Kazuya Nishimura from Daiwa Capital Markets. Nishimura highlights two key developments that need to take place for the company to see growth in earnings per share (EPS) over the medium and long terms. Firstly, PayPal needs to demonstrate clear growth in transaction-margin dollars. Secondly, it must show the benefits of its increased investments before it can boost its bottom line.
Nishimura believes that seeing improvements reflected in earnings may take some time due to the execution of the company's plans in 2024. He suggests that it could be challenging to identify growth potential for EPS in the medium term. As a result, Nishimura downgraded PayPal's stock to neutral from buy and adjusted the price target to $62.
However, Nishimura also acknowledges that PayPal has greater upside risk than downside risk when it comes to earnings. He even considers the stock undervalued. While the company's guidance looks conservative, Nishimura believes there is considerable potential for an overshoot. Nevertheless, he lacks the conviction to factor in sharp upside at this stage.
Despite these assessments, PayPal's stock has increased by approximately 10% over the past three months. However, it remains lower than its value from two years ago when it was nearly twice as high.
Interestingly, Wall Street analysts have also been revising their ratings on PayPal's stock. In February 2023, nearly 75% of analysts rated the stock as a buy. However, this number has decreased to just over 45% currently.
Overall, PayPal's growth potential is being carefully analyzed by experts within the financial industry. The company will need to demonstrate clear growth in transaction-margin dollars and prove the benefits of its investments to reignite optimism among investors.
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