PayPal’s Target Price Raised to $229 at Morgan Stanley, Forecasts Q3 Adjusted EPS of $0.94

Morgan Stanley raised their stock price forecast on PayPal to $229 from $210, assigning an “Overweight” rating for the leading global payments company’s stock and predicted third-quarter revenue growth of 25.3% with adjusted EPS of $0.94.

PayPal is scheduled to announce its third-quarter earnings results on Monday, November 2, after market close. The market expectations for EPS is for $0.94.

“We raise our 3Q20 revenue growth forecast to 25.3% from 23.0%, as we contemplate higher TPV growth of 31%. We lower our 3Q adjusted EPS forecast to $0.94 from $0.95 as we assume a slightly lower margin, given reinvestments. For CY20, we look for net revenues of $21,354M (up from $21,274M) due to strength in core PayPal and lower our adjusted EPS estimate to $3.70 from $3.71. In CY21, our total revenues forecast rise to $24,796M (vs. prior MSe of $23,357M) and our adjusted EPS estimate rises by $0.28 to $4.46,” said James Faucette, equity analyst at Morgan Stanley.

“In CY22, we look for a more normalized TPV and revenue growth rate of 23% (ex-FX) and 18%, respectively. We forecast ~75bps of adjusted operating income margin expansion. This results in 22% YoY adj. EPS growth to $5.46. We raise our PT to $229 (from $210), derived from a 42x (NC) multiple on our new CY22 adj. EPS forecast of $5.46,”

PayPal’s shares closed 4.56% lower at $186.13 on Friday; however, the stock is up over 70% so far this year.

Morgan Stanley gave a target price of $277 under a bull scenario and $113 under the worst-case scenario. Other equity analysts also recently updated their stock outlook. Citigroup boosted their target price on shares of PayPal to $218 from $186 and gave the company a “buy” rating in July. Wells Fargo & Company boosted their target price to $215 from $200 and gave the company an “overweight” rating. Jefferies Financial Group boosted their target price to $230 from $210 and gave the company a “buy” rating.

Fifteen analysts forecast the average price in 12 months at $228.27 with a high forecast of $290.00 and a low forecast of $201.00. The average price target represents a 22.64% increase from the last price of $186.13. From those 15, 14 analysts rated “Buy”, one rated “Hold” and none rated “Sell”, according to Tipranks.

“PayPal, one of our top OWs, is the preferred digital wallet option for non-Amazon merchants, as evidenced by its online acceptance lead vs. other digital wallets and industry-low attrition. PayPal’s efforts to offer a seamless and secure checkout experience ties its TPV growth rate with the secular growth of eCommerce,” Morgan Stanley’s Faucette added.

“As consumers increase their habitual use of PayPal, the company should grow its TPV at or above the rate of eCommerce (ex-Amazon). Venmo, POS and partnership monetization could offer additional TPV and revenue growth, while operating leverage from its scale support 20%+ earnings growth over the medium term, despite near-term headwinds from eBay and macro impacts.”

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