(Bloomberg) — Investors still harboring bullish hopes for PayPal Holdings Inc. are looking for a catalyst in the firm’s first earnings report under its new CEO on Wednesday afternoon.
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Alex Chriss is tasked with arresting a slump in which the e commerce firm’s stock has fallen 27% this year, putting it on course for its third-straight annual drop. The decline has puzzled bulls who see value in the firm’s long-term potential as a payments leader.
Some are calling for a return to discipline after some ill-fated acquisitions under previous CEO Dan Schulman, including the $4 billion acquisition of online coupon site Honey that closed in 2020.
“If the CEO can get even more aggressive on that and just pound the table on the stock and say it’s a return to discipline, I think some people could get caught wrong-footed short here,” said Brian Frank, portfolio manager of the Frank Value Fund.
The stock’s rout from a record high of roughly $308 reached in 2021 has pushed PayPal’s valuation to an all-time low of 9.4 times expected earnings. That puts its valuation at just a slightly more expensive level than HP Inc. and cheaper than Comcast Corp.
Wall Street is mostly bullish on the stock — 56% of analysts covering it have a buy-equivalent rating, and their average price target of about $82 per share represents nearly 60% upside.
Still, the shares have struggled to gain as payment fee rates and transaction margins remain under pressure. After booming in the immediate aftermath of the pandemic, analysts are worried that payment companies won’t be able to regain the same traction they saw in previous years.
“The strong growth that PayPal saw in a couple quarters in 2020 and 2021 — I think there are significant concerns on the Street that they were just a kind of Covid pull forward and they’re going to have bit more of a hangover than people realize,” said David Klink, senior equity analyst at Huntington Private Bank.
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Even Wall Street bulls think that a turnaround will likely take several quarters to achieve clarity…
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