Insights

Why PayPal Stock Popped on Monday

What happened
Shares of fintech pioneer PayPal Holdings (NASDAQ: PYPL) jumped in Monday afternoon trading on the Nasdaq.
PayPal shares are up 3.2% as of 12:35 p.m. ET despite two separate analysts cutting their price targets on PayPal today.
Image source: Getty Images.

So what
In twin, unrelated notes, first Barclays Capital cut its price target on PayPal stock by more than 38%, to $125 per share. About an hour later, Mizuho Securities followed suit, reducing its target for PayPal to $120 per share. Both analysts pointed to PayPal’s lackluster fourth-quarter earnings results last week (sales up only 7% year over year, and adjusted earnings down 28%) in explaining their lowered price targets — but here’s the funny thing:
PayPal stock currently sells for only $90 and change, so while the analysts cut their implied valuation for PayPal, they still think PayPal stock looks 33% to 39% undervalued at today’s prices. And for this reason, despite cutting price targets, both Barclays and Mizuho reiterated their belief that PayPal Stock is a “buy.”  
Now what
Do you think that might have gotten PayPal investors just a little bit excited today — the fact that even the PayPal bears are feeling pretty bullish on PayPal’s stock price? I do. And on top of the price target news, we also learned today that PayPal is growing its business in a new direction, inking a deal with Irish insurance giant Aon plc (NYSE: AON) to price small business insurance options at Aon via the PayPal Commerce Platform.  
The companies didn’t say straight out in their press release that PayPal will take a fee for insurance contracts it helps send Aon’s way — but I think that’s a safe assumption. The bigger question is whether PayPal starting up a small insurance referral business with Aon is the kind of news that makes PayPal stock worth $3 billion more today than it was worth at the end of last week.
Personally, I’m a lot more doubtful on that point. And I really doubt that the profits PayPal might get from its Aon deal will be enough to offset the 28% decline in earnings PayPal just suffered in its core payments business. At a not-cheap 25 times earnings, with sales just inching higher and profits moving the other way, I’m simply not as optimistic about PayPal stock today as these analysts appear to be.
Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends PayPal Holdings. The Motley Fool recommends Barclays and Nasdaq. The Motley Fool has a disclosure policy. –

What happened

Shares of fintech pioneer PayPal Holdings (NASDAQ: PYPL) jumped in Monday afternoon trading on the Nasdaq.

PayPal shares are up 3.2% as of 12:35 p.m. ET despite two separate analysts cutting their price targets on PayPal today.

Image source: Getty Images.

So what

In twin, unrelated notes, first Barclays Capital cut its price target on PayPal stock by more than 38%, to $125 per share. About an hour later, Mizuho Securities followed suit, reducing its target for PayPal to $120 per share. Both analysts pointed to PayPal’s lackluster fourth-quarter earnings results last week (sales up only 7% year over year, and adjusted earnings down 28%) in explaining their lowered price targets — but here’s the funny thing:

PayPal stock currently sells for only $90 and change, so while the analysts cut their implied valuation for PayPal, they still think PayPal stock looks 33% to 39% undervalued at today’s prices. And for this reason, despite cutting price targets, both Barclays and Mizuho reiterated their belief that PayPal Stock is a “buy.”  

Now what

Do you think that might have gotten PayPal investors just a little bit excited today — the fact that even the PayPal bears are feeling pretty bullish on PayPal’s stock price? I do. And on top of the price target news, we also learned today that PayPal is growing its business in a new direction, inking a deal with Irish insurance giant Aon plc (NYSE: AON) to price small business insurance options at Aon via the PayPal Commerce Platform.  

The companies didn’t say straight out in their press release that PayPal will take a fee for insurance contracts it helps send Aon’s way — but I think that’s a safe assumption. The bigger question is whether PayPal starting up a small insurance referral business with Aon is the kind of news that makes PayPal stock worth $3 billion more today than it was worth at the end of last week.

Personally, I’m a lot more doubtful on that point. And I really doubt that the profits PayPal might get from its Aon deal will be enough to offset the 28% decline in earnings PayPal just suffered in its core payments business. At a not-cheap 25 times earnings, with sales just inching higher and profits moving the other way, I’m simply not as optimistic about PayPal stock today as these analysts appear to be.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends PayPal Holdings. The Motley Fool recommends Barclays and Nasdaq. The Motley Fool has a disclosure policy.

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