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PayPal (PYPL) Stock Falls Following Analyst Coverage

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  • PayPal (PYPL) stock is down about 4% in early afternoon trading after a BMO analyst initiated coverage.
  • The company’s “market perform” rating and $65 price target appear to have underwhelmed investors.
  • Execution risk was highlighted in the analyst note, as were concerns around market share losses and slower growth.
PYPL stock - PayPal (PYPL) Stock Falls Following Analyst Coverage

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In the fintech space, PayPal (NASDAQ:PYPL) remains a top stock investors watch very closely. The leader in many facets of digital payments, PayPal remains a top holding of many large funds and is widely held by many investors with any sort of index fund. Accordingly, the direction in which PYPL stock moves on a given day (particularly if it’s a big move) is worth paying attention to.

Unfortunately, PYPL stock is on the decline today following the initiation of coverage by an analyst from BMO Capital Markets. Analyst Rufus Hone put forward a “market perform” rating on PYPL stock alongside a $65 price target. Indeed, investors appear to be underwhelmed by this rating and what was said in the note.

Hone pointed out that “investor concerns around market share losses, an aggressive pricing environment in unbranded processing, and slower e-commerce growth” could hamper the stock, suggesting that execution risk still hangs over this company. He also noted that growth over the next two years could come in at the mid-single-digit range, lower than the market’s consensus expectation right now.

It’s worth pointing out that Hone also assumed coverage of rival Block (NYSE:SQ), issuing an “outperform” rating on the stock, citing strong growth from Cash App and Square Seller as reasons to buy the stock.

Let’s dive into what investors should make of this news today.

PYPL Stock Drops on Analyst Report

Analyst ratings matter a great deal to large institutional and retail investors alike. Analysts’ growth projections can also inform an individual investor’s assumptions in their financial modeling. Accordingly, with growth expected to come in at a more muted pace at PayPal relative to its competitors, the company’s valuation is taking a breather today.

Such a reaction makes sense, and the market appears to be acting rationally here. However, it’s also true that analysts very rarely see their projections come to fruition. As is the case with any investor diving into a stock, an entire set of assumptions is required to come to a number like $65 per share. And while that’s not a lot of upside from current levels (though it is something, after today’s decline), investors always need to take a critical, independent view of every stock they consider buying.

It’s my view that Hone points out some material risks to PayPal over the medium term, and these are certainly worth pricing in. The market has done that today, so now the question is whether more downside needs to be priced in. Accordingly, PYPL stock will be intriguing to watch over the coming weeks as the market comes to a consensus on what this mega-cap stock should be worth.

On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.


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