PayPal Holdings, Inc (NASDAQ: PYPL) has seen better days and better days are on the horizon. The stock is down more than 75% from its recent highs, which is bad news for holders but good news for those looking to get into this still-growing growth story. The takeaway today is that analysts and institutional sentiment in PayPal Holdings are firming after a dark time and that is a signal investors should take note of.
Near-term headwinds persist, but they may be factored into the price. In regard to the longer-term outlook, this company is still expected to grow at a 10% pace or better in F2023 and has the tailwinds of increasing scale and deepening penetration to help support it during the coming economic downturn.
The Sell-Side Is Buying PayPal At Current Levels
Two noteworthy trends in the analyst sentiment should help put a bottom in the stock. Those are the 12-month and 3-month trends which show sentiment reduced and price target greatly reduced versus last year but firming in the near-term. The salient points here are that sentiment remains bullish at Moderate Buy and the price target, even at the low end of the range, implies at least 10% of upside for the stock.
The most recent 4 analysts' commentaries include 2 boosted targets to a range bracketing the consensus, 1 reiterated Hold that assumes the stock is fairly valued and the latest, which is an upgrade to Buy with a price target near $95 and above the low-end.
The upgrade is from Truist analyst Andrew Jeffrey who cited valuation, realistic estimates from the analysts’ community and the company’s $6 billion in cash. That money, he says, could be used to fund acquisitions or share repurchases, either of which will help drive shareholder value.
The institutions, not surprisingly, are also buying the stock at these levels. The institutions have been net buyers all year save for a quarter that was not the most recent. In total, their activity netted $1.8 billion in shares which is worth about 2.2% of the market cap with the stock trading near recent lows.
PayPal Estimates Come Down To Earth
The estimates for PayPal’s FQ4 2022 and FY2023 have come down since the last earnings report but they are still strong and offer the potential for upside surprise as well. The Q4 consensus has revenue up 7.7% and earnings up 10.2% on a sequential basis and up slightly smaller amounts versus last year.
The highlight of the outlook, however, is the consensus for 2023 which assumes quarterly growth will average at a higher 10% with earnings expanding at a faster 17% clip. This should help increase the cash pile while supporting ongoing share repurchases, which totaled roughly $4 billion in 2022.
All this bullish activity has the stock showing signs of a bottom. The bottom was first hit early in 2022 and then again later in the year, leaving it in a position to rebound now. The indicators on the weekly chart are divergent from the recent lows as well and are also set up to fire bullish signals upon an upswing in prices. Assuming the market follows through on what is is telegraphing, this stock should begin to rise in early 2023 and may gain high double-digits or more by the end of the year.