Some interesting speculations have arisen in the financial world in 2023, but Paypal (NASDAQ: PYPL) might be the most interesting. The company’s share price has been beaten down 80% from its pandemically-inspired highs, offering the lowest prices since 2017 while it performs at historically high levels and growing. That suggests a buying opportunity. The analysts' responses to the Q1 results were mixed, helping to depress share prices even further, but the takeaways from the chatter are bullish.
Other than a down-shift in sentiment, the company is operating well in the current and changing environment, its business is still supported by growth and deepening penetration of eCommerce, and the analysts see an upside for the market.
Paypal Raises Guidance, Shares Implode
Paypal had a great quarter setting another quarterly record at $7.04 billion. That’s down sequentially due to the seasonal holiday boost but up 8.3% compared to last year and 70 bps better than the Marketbeat.com consensus. The gain is driven by a 9.9% increase in total payment volume and a 13% increase in transactions. The better news is that margins expanded compared to last year, driving outperformance on the bottom line. The company’s adjusted operating income grew nearly 20%, driving a 33% increase in adjusted earnings. The EPS came in at $1.17 compared to last year and beat consensus by $0.07.
Guidance is raised for the year, but the news is mixed, so the market shuns the stock in post-release trading. The company raised its guidance for FY revenue by 2% at both ends of the range and the target for EPS to $4.95 compared to the $4.89 consensus figure. This should have the stock moving higher, but expects 2nd quarter weakness relative to consensus and for margin improvement to slow in the 2nd half.
The Analysts' Response To Paypal Results Is Mixed
The analysts' response to the Q1 results and guidance is mixed and biased negatively, but the takeaway is bullish. Marketbeat.com has picked up 5 price target reductions and a downgrade but also 2 price target increases. The critical data is that the low target of $75 is well above the current price action, and the consensus is more than 50% higher, with the stock rated a Moderate Buy. The 2 price target increases come from Piper Sandler and Citigroup, which see the stock trading at an average of $93 compared to the $102 consensus figure.
Credit Suisse, which downgraded the stock to Neutral, says near-term pressures limiting growth and profitability make it an uncompelling investment. The stock may become a better buy if and when it shows a path toward more meaningful long-term gross profit growth. They have a target of $85 which suggests the sell-off in the stock is overblown.
The institutions also support the name and may help put it at the bottom. The institutions have been buying on balance for the last 12 months and ramped up their activity in Q1. The Q2 activity is light and evenly balanced at this point in the quarter; a change in that statistic could signal the tipping point for the market.
The Technical Outlook: Paypal Is Almost Oversold
Shares of Paypal are down another 12% on the Q1 news and guidance but are approaching oversold levels. This stock is set up to rebound as in the past, and it could be a solid move. The first target for resistance is the short-term moving average of about 20% above the current action. The risk here is the EMA could cap gains. In that scenario, a move to new lows is possible. The question here is where the bottom is. Moving to new lows could open the door to a much deeper decline, and we have yet to see signs of a bottom. When that appears on the charts, it’s time to consider investing in Paypal.
