PayPal shares are up 3.2% as of 12:35 p.m. ET despite two separate analysts cutting their price targets on PayPal today.
In twin, unrelated notes, first Barclays Capital cut its price target on PayPal stock by more than 38%, to $125 per share. About an hour later, Mizuho Securities followed suit, reducing its target for PayPal to $120 per share. Both analysts pointed to PayPal's lackluster fourth-quarter earnings results last week (sales up only 7% year over year, and adjusted earnings down 28%) in explaining their lowered price targets -- but here's the funny thing:
PayPal stock currently sells for only $90 and change, so while the analysts cut their implied valuation for PayPal, they still think PayPal stock looks 33% to 39% undervalued at today's prices. And for this reason, despite cutting price targets, both Barclays and Mizuho reiterated their belief that PayPal Stock is a "buy."
Do you think that might have gotten PayPal investors just a little bit excited today -- the fact that even the PayPal bears are feeling pretty bullish on PayPal's stock price? I do. And on top of the price target news, we also learned today that PayPal is growing its business in a new direction, inking a deal with Irish insurance giant Aon plc (AON 0.66%) to price small business insurance options at Aon via the PayPal Commerce Platform.
The companies didn't say straight out in their press release that PayPal will take a fee for insurance contracts it helps send Aon's way -- but I think that's a safe assumption. The bigger question is whether PayPal starting up a small insurance referral business with Aon is the kind of news that makes PayPal stock worth $3 billion more today than it was worth at the end of last week.
Personally, I'm a lot more doubtful on that point. And I really doubt that the profits PayPal might get from its Aon deal will be enough to offset the 28% decline in earnings PayPal just suffered in its core payments business. At a not-cheap 25 times earnings, with sales just inching higher and profits moving the other way, I'm simply not as optimistic about PayPal stock today as these analysts appear to be.