What happened
Shares of PayPal (PYPL -2.36%) had risen more than 16% this week as of market close Thursday after the company received bullish ratings from two analysts earlier in the week. Additionally, the Federal Reserve began raising its benchmark overnight lending rate, the federal funds rate, for the first time since 2018 at its March meeting held earlier this week.
So what
Deutsche Bank analyst Bryan Keane reiterated his buy rating for PayPal, citing future tailwinds from the company's eventual expansion into China and further offerings on the platform ranging from card-based solutions and the integration of Zettle, its point-of-sale offering that it purchased in 2018. Keane has a price target of $200, implying substantial upside from PayPal's current stock price of roughly $112.
MoffettNathanson analyst Lisa Ellis also gave PayPal a buy rating and a $190 price target, saying that she sees potential from further recovery in China, new offerings on the platform, and growth from eBay in the U.S.
Image source: Getty Images.
Not everyone is so bullish on PayPal, however. Just last week, Bank of America analyst Jason Kupferberg downgraded the stock and chopped his price target from $175 to $107. In a research note, Kupferberg said he thinks management "overestimated the sustainability of tailwinds induced by the pandemic and related stimulus." Kupferberg slashed his estimates for total payment volume (TPV) forecasts in 2022 and 2023, which will take revenue with it, as PayPal makes most of its money on transaction fees.
The Fed also raised the federal funds rate this week by 25 basis points (0.25%) and said it expects similar-sized hikes at its next six meetings in 2022, and then potentially five more rate hikes in 2023.
Now what
Rising rates can hurt PayPal's business because they will likely slow consumer demand and, therefore, TPV on the platform. But as PayPal's CFO John Rainey said at a recent conference, the company has only been penciling in two rate hikes this year. Because PayPal earns interest income on customer balances, more rate hikes will also increase this segment of revenue.
Overall, trading at 24 times forward earnings, PayPal trades at a lower earnings multiple than it has historically. While things may not be firing on all cylinders right now, considering the company's scale and continued investment, I think this is a good time to get in on the stock.
