Jefferies: PayPal Is More Than A Payments Company

Jason Kupferberg at Jefferies initiated Paypal Holdings Inc PYPL with a Buy rating and a $44 price target, a 20 percent premium to Monday's closing price of $36.39.

Kupferberg said that the "scarcity value of the stock […] will command a higher multiple," particularly since the company is a "worldwide leader in social/mobile money movement." Though a value of 21x 2017 P/E multiple "doesn't look cheap," the company should trade as a "hybrid of a payments stock and an Internet stock," justifying a rich value.

Jefferies acknowledges the bear case against PayPal, notably that the company is in a competitive space with players like Alibaba Group Holding Ltd BABA, Amazon.com, Inc. AMZN, Visa Inc V and Mastercard Inc MA. Kupferberg said that while PayPal's business "model" and "moat" is not as strong as Visa or Mastercard, it is a "scarce investment opportunity."

There's also the giant in the room: Apple Inc. AAPL. Kupferberg said that while the firm is not "dismissive of the long-term threat potential" from Apple, it does not see the company as a "near-term threat."

Jefferies pointed to the fact that PayPal has a strong, "leveragable" balance sheet with roughly $6 billion in cash. That strong balance sheet will help the company drive M&A, potentially adding to its recent acquisitions of Braintree, Paydiant and XOOM. That M&A will "help the company drive increased user engagement over time."

PayPal was trading 1.4 percent higher in pre-market activity after falling 10 percent since the company was first spun off. The company hit a high of $42.55 on its first day of trading.