Slow And Steady Wins The Race At eBay, Axiom Says

• Since spinning off its Paypal Holdings Inc PYPL unit, eBay Inc EBAY stock is down 5 percent.
• Though the e-commerce giant's growth will be slower than rivals, Axiom's Victor Anthony instituted a new $34 price target on the stock.
• Anthony said that eBay's future earnings growth, free cash flow generation and high returns on invested capital will help the stock move higher.

Axiom analyst Victor Anthony likes eBay after reviewing the company's adjusted 8-K filings that show its prior financial performance broken out from the PayPal unit. At these levels – closing Monday at $27.11 – Anthony called eBay's valuation "attractive" and noted that the $34 price target reflects just a 15x multiple on 2017 estimated EPS.

While growth at eBay will lag its e-commerce peers, Anthony said the firm was impressed by "healthy future earnings growth," free cash flow generation from 25 to 30 percent margins, and high returns on invested capital. Axiom called the 2016 guidance "conservative," noting that it did not account for any gains in marketing and new products.

Further, Anthony said that eBay had a "healthy, under-levered balance sheet" that "provides flexibility." The company's strong cash position ($8.5 billion in cash and $2.4 billion in equity investments and other versus $7.6 billion in debt) will allow it to be "more aggressive with share repurchases," or even go on an M&A binge or institute a quarterly dividend – all of which would be supportive of the share price.

Since spinning off the PayPal unit, eBay has traded between $23 and $29 per share. At $27 per share, the price is just above the median.