PayPal Holdings stock has gained 3% in Wednesday premarket trading after BofA Securities analyst Jason Kupferberg upgraded the payment company name to Buy from Neutral, citing expected cost savings and potential for share buybacks.
"We believe these initiatives are likely to be pushed for by activist Elliott Management (who recently disclosed a 2% stake in PYPL), and we note PYPL's new CFO, Blake Jorgensen, has a track record of executing well on cost/margin initiatives," Kupferberg wrote in a note to clients.
The analyst sees attractive risk/reward due to PayPal's (PYPL) potential to earn $5+ EPS next year; with that estimate, the stock trades at 18.4x price/earnings and Elliott's involvement "likely provides support to the stock," he said.
Potential catalysts include: H2 revenue re-acceleration, due to the firm lapping eBay (EBAY) loss and easier ecommerce comparisons, and its Q1 2023 analyst day where Kupferberg expects PayPal (PYPL) will outline more detailed multiyear capital deployment strategy.
Price target is raised to $114 from $94.
Potential risks include: macro environment, as PYPL leans toward lower to middle income consumers' discretionary spending; the potential to focus on costs/margin at the expense of growth; execution on its pivot to focus on average revenue per user over net additions; and competition.
Quant rating of Hold is more cautious than Kupferberg's Buy rating, due to a low score on growth and average score on valuation. However the Buy rating aligns with the average SA Authors' rating and the average Wall Street rating.