What happened
Shares of PayPal (PYPL 1.96%) were decidedly positive on Monday, jumping as much as 4%. By the time the market closed, the stock was still up 3.3%.
When the fintech pioneer reported its third-quarter results Friday, investors didn't like what they saw. On further reflection, however, shareholders decided things weren't all that bad. A couple of well-placed words from analysts didn't hurt either.
So what
In the wake of PayPal's financial results, two of Wall Street's finest weighed in on the quarter, and their takes were surprisingly bullish.
DA Davidson analyst Christopher Brendler lowered his price target on PayPal to $110 from $120 while simultaneously maintaining a buy rating on the shares. While he noted the results were a "step back" from its second-quarter performance -- with deterioration in a few key metrics -- he noted that PayPal "made real progress" on the company's cost-cutting initiatives, which will pay dividends over the long term. Additionally, he was impressed in the performance of its buy now, pay later business, as its "credit looks great."
BMO Capital Markets analyst James Fotheringham was similarly upbeat. While he lowered his price target on PayPal to $109 from $137, he also maintained an outperform (buy) rating on the shares. He acknowledged management's conservative guidance due to weaker e-commerce volume.
Fotheringham remains bullish long term, however, as PayPal continues to gain market share of industry-wide online purchases, with "sustained frequency of use by active accounts and margin expansion from increased cost discipline."
Now what
PayPal's third-quarter results beat on both the top and bottom line, but investors were taken aback by its guidance. The company now expects full-year revenue growth of 13%, down from its previous level of 14.5%. At the same time, however, management increased its earnings per share forecast to $4.08 at the midpoint, up from $3.92, as a reflection of its success reducing expenses.
Given the company's entrenched place in digital payments, investors shouldn't be too quick to give up on PayPal. The perfect storm of a foreign currency headwinds, a stagnant economy, and its well-publicized divorce from eBay have all temporarily weighed on results, but this too shall pass. Furthermore, at just 2.9 times next year's sales, PayPal stock is a steal.
