For many years, Paypal Holdings Inc (PYPL) was merely a division of its parent company eBay (EBAY), which had acquired the payments platform way back in 2002.
But more than a decade later, PayPal was growing too quickly for its own good; and investors demanded — and ultimately received — a spinoff that would help to “unlock the true value” of PayPal.
Wall Street got just that in early July, and within a few weeks of its trading debut, PYPL stock was trading as much as 15% higher. That initial euphoria was short-lived, however, and PayPal stock is actually trading 6% below its debut price today.
While it hasn’t exactly come out of the gates guns blazing, PYPL still has plenty of potential, and some analysts are sticking their necks out for the company in a major way.
One recent analyst move in particular should catch investors’ eyes.
PYPL Stock: Now on Jefferies’ Franchise Pick List
Jason Kupferberg of Jefferies added PayPal stock to the firm’s elite “Franchise Pick” list, bestowing PYPL with a “buy” rating and a $44 price target. That represents a 29% premium to yesterday’s closing price of $34.05.
Importantly, PayPal will report the results of its first quarterly report as a public company on Oct. 28. Kupferberg believes all the company needs to do is report a “solid” third-quarter report and reiterate full-year 2015 guidance. If it does that, he says, PYPL stock should be suited for a nice little spike.
One favorable contract PYPL was able to haul in this quarter was an omnichannel deal with Macy’s (M) that covers in-store, mobile and web-based purchases.
Kupferberg notes that the Macy’s win could signal more deals like it that are on the horizon. Indeed, one of the frequently cited holdups associated with PayPal being a subsidiary to eBay was the exclusive relationship PYPL had to heed with eBay Marketplaces. PayPal was not, for instance, allowed to court Amazon (AMZN) as another potential client.
While no such restrictions limit PayPal today, it’s somewhat unlikely that the company teams up with AMZN in a proprietary deal anytime soon. That said, I wouldn’t be surprised to see PayPal aggressively pursue deals like the Macy’s one in the months and years to come.
PYPL stock currently trades at a modest premium to the overall market, at 23 times forward earnings. I’d argue, however, that given the strength and vastness of its payment systems — not to mention the many potential wins that could come in the future now that the restrictive relationship with eBay is over — PayPal deserves a premium valuation.
Despite being a $40 billion company, there’s still plenty of runway left with this stock. That’s reiterated by other analyst ratings from firms like Cannacord Genuity and Stifel, which have price targets of $43 and $40 for PYPL, respectively.
I truly think this is a solid stock for most investors’ portfolios, which is why I added it to my own as soon as its spinoff was complete.
As of this writing, John Divine was long PYPL stock. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
