Buyback Could Be Imminent At PayPal

• Paypal Holdings Inc PYPL shares have been trending lower for the past one month, and are down 14 percent since December 28.
• SunTrust Robinson Humphrey’s Robert S. Peck maintained a Buy rating for the company, while reducing the price target from $45 to $38.
• PayPal is likely to announce a share buyback, besides reporting robust 4Q results and issuing in-line 2016 guidance, Peck stated.

Analyst Robert Peck expects PayPal to report robust 4Q results, with revenue and EPS of $2.5 billion and $0.35, respectively. He also expects the company to issue in-line 2016 revenues and EPS of $10.6 billion and $1.49, besides announcing a share buyback.

“We expect 2016 guidance in-line with the company’s medium-term outlook for FX-neutral: TPV growth of mid-20% (was 27% in 3Q) and revenue growth of ~15% (was 19% in 3Q)…We estimate a ~2 point headwind from FX, based on current rates, offset by the inclusion of Xoom, assuming no synergies,” Peck wrote.

PayPal’s non-GAAP operating margin guidance is also expected to be in-line with the company’s medium term outlook for stable to growing. Potential upside to the company’s earnings could come from Xoom synergies, Venmo monetization, lower EU interchange and share buybacks, the analyst said.

The company had cash worth $6.7 billion as of 3Q and no debt. A $500 million repurchase will add $0.02 to the company’s 2016 EPS. “We also note that falling valuations, public and private, could allow for stepped up M&A, which is of course already a key part of the company's strategy,” Peck wrote.

The cut in price target reflects broad market multiple contraction, the report added.