PayPal (PYPL - Free Report) shares have tumbled roughly 15% since the company completed its purchase of iZettle last month. Yet, the move could help PayPal better compete as a more all-encompassing fintech firm. So, the question is should investors consider buying PYPL stock at what might prove to be a discount ahead of its third-quarter earnings release?
Recent News & Overview
PayPal, which officially spun off from eBay (EBAY - Free Report) in 2015, claims 244 million active account holders in roughly 200 markets. The company has also actively expanded its business to move far beyond an online payment processor.
The company’s peer-to-peer payment app Venmo rivals Square’s (SQ - Free Report) Cash app. PayPal also boasts over 17 million business clients. These firms can use PayPal for online, mobile, and in-store payment solutions. Meanwhile, qualified clients can access business loans of up to $500,000.
PayPal, in its fight to stand out and expand in a growing fintech industry has gone on an acquisition spree as of late. This includes its June purchase of Hyperwallet for roughly $400 million to help it expand its global payout capabilities. PayPal also acquired fraud prevention and risk management firm Simility. But the company’s most impactful purchase might turn out to be its $2.2 billion acquisition of small business commerce firm iZettle. The Stockholm-based firm has been referred to as the “Square of Europe.”
Plus, on Thursday, PayPal and Walmart (WMT - Free Report) announced a new partnership that allows PayPal users to “cash in and cash out” at Walmart stores for a $3 service fee. This marks the first time the fintech company will let its users take out cash or put money into their PayPal accounts at a brick-and-mortar store.
Additionally, PayPal Cash Mastercard (MA - Free Report) customers can access their cash balance at Walmart Service Desks, ATMs, and cash registers for the same fee. These offerings will be introduced at every Walmart store in the U.S. by as early as November.
It is worth noting that PYPL stock has been pretty volatile over the last 12 months. However, over the past two years, we will notice that PayPal stock has crushed its industry’s average climb. PayPal’s recent decline also sets up what might be a solid buying point, as it sits roughly $15 below its 52-week high of $93.70 per share.
Moving on, PYPL stock is currently trading at its lowest earnings multiple over the last year at 36.4X forward 12-month Zacks Consensus EPS estimates. PayPal has traded as high as 55.8X over the past year, with a one-year median of 43.2X. This means that PayPal’s valuation picture appears relatively attractive at its current level.
Outlook & Earnings Trends
Looking ahead, our current Zacks Consensus Estimate is calling for PayPal’s Q3 revenues to pop by 13.2% to hit $3.67 billion. PYPL’s fiscal year revenues are projected to reach $15.43 billion, which would represent a roughly 18% climb.
At the bottom end of the income statement, PayPal’s adjusted quarterly earnings are projected to jump by approximately 17.4% to hit $0.54 per share. Meanwhile, its full-year EPS figure is expected to expand by 23.7%.
PayPal has also seen some positive earnings estimate revision activity for fiscal 2018 and 2019, over the last 60 days.
PayPal is currently a Zacks Rank #2 (Buy) based on its recent positive long-term earnings revision trends. The company has also topped our quarterly earnings estimates in six straight quarters. Therefore, it might be worth considering PYPL stock at this time based on its recent string of forward-looking acquisitions, its current growth outlook, and its “cheapish” price.
PayPal is scheduled to release its Q3 financial results on Thursday, October 18.
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