Pair Trade? Bob Peck Starts PayPal At Buy, Maintains Neutral On eBay

In a report published Monday, SunTrust Robinson Humphrey analyst Robert S. Peck initiated coverage of Paypal Holdings Inc PYPLV with a Buy rating and a price target of $45, saying that the company was a leader in a “large, growing TAM” and had “ample capital capacity” to fund growth.

“The company is a leading enabler of online and in-app payments, thus levered to secular growth of electronic payments and e-commerce (16% CAGR), including mobile (28% CAGR),” analyst Robert Peck said. PayPal’s immediate revenue TAM of B2C ecommerce was estimated at more than $45B, while total “stretch” TAM, including B2C, remittance, B2B and in-store, could be about $500B.

PayPal has more than $6B in cash as well as the capacity to raise about $5B in debt. “Per management, inorganic growth is core to the growth strategy and key areas of focus include: in-store (acquisition of a global processor could make a lot of sense), P2P payments, P2P lending, SMB lending, and loyalty/rewards. The company has a strong recent track record of M&A,” Peck said.

Following its spin-off from eBay, SunTrust analyst Robert Peck maintained a Neutral rating on eBay Inc EBAY, with a price target of $30, saying that the company was in the initial phases of its turnaround effort.

In the report SunTrust cited the positives for eBay as:

• “the platform is beginning some transformation initiatives, especially structured data, which are key to reaccelerating growth and user engagement
• significant FCF and debt leverage capacity afford material financial flexibility
• disciplined M&A strategy targeting geographical expansion internationally and tech/talent in the U.S. can drive LT growth
• shareholder-friendly actions including returning capital should enhance returns”

Peck believes that although the initial results from the company’s platform initiatives had been “encouraging,” there is likely to be limited near-term growth “until the multi-year transformation begins to deliver.” Moreover, while eBay has a constraint on the amount of shares it can repurchase over the next two years, “it can thereafter lever up to aggressively return capital, which could deliver outsized returns.”