Source: Davit Kirakosyan
PayPal (NASDAQ:PYPL) Shares on the Rise
Shares of PayPal (NASDAQ:PYPL), a leading global payments company, saw a significant uptick of over 2% in the pre-market trading session today. This surge followed an upgrade from BofA Securities, which shifted its rating for the company from Neutral to Buy. Additionally, the financial services company raised its price target for PayPal from $86 to $103. This positive adjustment is a testament to the substantial progress PayPal has demonstrated in its turnaround efforts under new management, barely a year after undergoing a comprehensive management overhaul.
Reasons Behind the Upgrade
The upgrade by BofA Securities doesn’t come as a surprise considering the monumental strides that PayPal has made in the digital payments space. One of the key highlights pointed out by the firm is the potential acceleration in Total Payment (TP) growth by 2025. This potential growth is spurred by recent positive trends witnessed in e-commerce spending, especially during the holiday seasons. The current pandemic has also played a critical role in changing consumer behavior, leading to an increased preference for online shopping and digital payments, which bodes well for PayPal’s future.
BofA Securities also emphasized that the company’s current valuation does not fully reflect the modest improvements in branded total payment volume (TPV) growth. This suggests that the market may be underestimating PayPal’s growth potential, thereby creating an attractive entry point for investors.
PayPal’s Investor Day: A Potential Catalyst
Apart from these growth prospects, the firm also highlighted that PayPal’s upcoming Investor Day in February could serve as a catalyst for further positive sentiment. This event will provide an opportunity for PayPal’s management to share their strategy, growth plans, and progress on various initiatives, which could potentially trigger a re-rating of the stock by the market.
Free Cash Flow and Share Buybacks
Another key area of focus for BofA Securities is PayPal’s robust free cash flow generation and ongoing share buybacks. These are expected to remain integral parts of the company’s strategy going forward. Strong free cash flow generation provides the company with financial flexibility to invest in growth opportunities, reduce debt, pay dividends, or repurchase shares. On the other hand, share buybacks can help to increase earnings per share and return excess cash to shareholders, thereby bolstering PayPal’s investment appeal.
Improved Sentiment and Underweight Positions
BofA Securities emphasized that improved sentiment around PayPal is achievable. Despite the company’s strong performance, many large institutional investors continue to maintain underweight positions in PayPal. However, with encouraging signs of growth and operational efficiency, there’s a high probability these institutions may reconsider their stance, leading to a potential influx of capital into the stock. This could serve as another catalyst for the company’s stock price.
A Stronger Performance Ahead for PayPal
With these positive developments and prospects, PayPal appears poised for a stronger performance in the coming years. The company has not only demonstrated resilience in the face of the pandemic but also shown its ability to leverage the digital shift in global payments. As it continues to innovate and expand its offerings, PayPal remains a compelling investment proposition in the digital payment space.