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PayPal (PYPL) Stock Looks Like a Buy Heading Into the New Year

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Shares of PayPal (PYPL - Free Report) are still up roughly 10% over the past year despite a ton of turbulence. So, let’s see why the financial tech firm’s stock looks like a buy heading into 2019 in an industry that is only set to grow.

Recent News

PayPal, which spun off from eBay (EBAY - Free Report) in 2015, has expanded its reach through a series of acquisitions. This includes the firm’s $400 million purchase of Hyperwallet to help expand its global payout capabilities and its $120 million acquisition of fraud prevention firm Simility. PayPal’s $2.2 billion purchase—its largest ever—of small business commerce firm iZettle has come under fire from the U.K. Competition and Markets Authority after the deal closed in late September.

PayPal has, however, assured the U.K. watchdog that the merger won’t hurt consumers. “We absolutely believe that we will demonstrate that we are bringing more choice (and that) we are pro-competition. We are really looking to expand the market in ways that are great for small business and great for consumers alike,” PayPal COO Bill Ready told CNBC earlier this month.

Investors will have to wait to see how this situation plays out. But PayPal’s purchase of the Stockholm-based firm that has been called the “Square of Europe” and operates heavily in Europe, Mexico, and Brazil, was made to help it compete against rivals such as Square (SQ - Free Report) and fight off encroachment from the likes of Amazon (AMZN - Free Report) .

Overview

With all that said, PayPal closed the third quarter with 254 million active accounts, up 15% from the year-ago period. The company’s total payment volume also surged 24% to $143 billion. Mobile payment volume accounted for 40% of the firm’s overall TPV. Investors should note that the company’s widely popular peer-to-peer payment app, Venmo, saw its TPV soar 78% to reach $17 billion.

Going forward, PayPal will focus on ways to monetize Venmo more effectively as the mobile P2P payment space booms, which has left traditional banking giants like JPMorgan Chase (JPM - Free Report) trying to play catch up. We should also note that PayPal secured partnerships with American Express (AXP - Free Report) and Walmart (WMT - Free Report) last quarter.

PayPal has expanded to become a more complete financial services firm and currently works with roughly 17 million businesses on everything from payment solutions to loans of up to $500,000. PayPal and other fintech firms could grow as they offer more services to clients that might be underserved by larger institutions around the world. 

Outlook

As we mentioned at the top, PayPal stock has moved somewhat sideways over the last year. But investors will notice that shares of PYPL have soared over the last three years. PayPal stock closed Wednesday at $84.03 a share. This marked a roughly 10% downturn from its 52-week high and could set up a solid buying opportunity for those high on PYPL.

Looking ahead, PayPal’s Q4 revenues are projected to jump 13.2% to reach $4.24 billion, based on our current Zacks Consensus Estimate. We should note that this growth would fall just slightly behind Q3’s 14% top-line expansion.

Meanwhile, the fintech firm’s full-year revenues are expected to climb 18.1% to reach $15.46 billion. Our fiscal 2018 growth projection does come in under 2017’s 21% revenue growth, but would top 2016’s 17% climb.

Peeking ahead to fiscal 2019, PayPal’s full-year revenues are projected to come in 17% above our current-year estimate to hit $18.1 billion.

Earnings Trends

Moving on, PYPL’s adjusted quarterly earnings are projected to surge 21.8% to touch $0.67 per share. Better yet, the company’s full-year earnings are expected to soar 26.3%. Plus, our 2019 estimate calls for PayPal’s earnings to climb 20.3% higher than 2018.  

We should also note that PayPal’s earnings estimate revision activity has trended in the right direction recently. This tells us that at least some analysts are more optimistic about PayPal’s earnings picture than they were earlier this quarter.

Bottom Line

PayPal is a Zacks Rank #2 (Buy) that sports an “A” grade for Growth in our Style Scores system at the moment. On top of that, PYPL is trading close to its 12-month low at 37.6X forward 12-month Zacks Consensus EPS estimates. PayPal has traded as high as 55.8X over the last year, with a median of 42.9X.

Therefore, we can say that PYPL’s valuation picture appears somewhat attractive at the moment. Coupled, with the company’s top and bottom-line growth estimates and its plans to become a more complete financial services firm, PayPal looks like a stock worth thinking about heading into 2019.

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