Long-Term Investors Should Win Out, Says RBC

Last year ended on a down note for PayPal (PYPL) stock; over the past 3 months, shares have lost 28% of their value. With 2022 now up and running, investors will be hoping the stock can regain its footing.

While RBC’s Daniel Perlin remains in the digital payments giant’s corner, the analyst thinks the company’s outlook necessitates a revision to his PayPal model. “We have better incorporated into our model management’s commentary around the difficult comps expected in FY22, given reserve releases in FY21, which should return to more normalized patterns in FY22,” the 5-star analyst explained.

As such, Perlin reduced his FY22 adj. EPS estimate from $5.42 to $5.07 and lowered the adj. EBITDA forecast from $8.42 billion to $7.95 billion.

PayPal’s share price decline is by no means unique in the payment space; most of its peers have seen “material multiple contraction,” while many growth stocks’ valuation have been hammered amidst the heightened fears of inflation and rising interest rates.

As such, alongside the reduced FY22 estimates, there is also a price target cut for the stock. The figure drops to $230 from $298, and now suggests shares will climb by 23% over the one-year timeframe. (To watch Perlin’s track record, click here)

Although the new target “better reflects the peer group range,” Perlin is by no means bearish on PayPal.

“We believe our thesis remains unchanged, in that PYPL remains an under-monetized asset, thus as consumer engagement increases, so should monetization opportunities,” the analyst wrote. “In addition, we believe FY22 will remain a transition year, as more normalized patterns re-emerge, such as the balance between ecommerce & physical world spending, credit reserve builds and the reduced impact from eBay’s roll off.”

Perlin thinks there are several catalysts which could help proper the shares higher over the near-term; accelerating mobile adoption could boost growth, new strategic partnerships with major industry players could help sentiment, while capital deployment for M&A could also “accelerate top-line growth.”

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Turning now to the rest of the Street, where PayPal still garners the support of most analysts; the stock’s Strong Buy consensus rating is based on 27 Buys, 4 Holds and 1 Sell. Moreover, the average price target remains an optimistic one; at $266.8, the figure is set to reward investors with returns of 42% in the year ahead. (See PayPal stock analysis on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.