Cowen Turns Bullish On PayPal, Says 'Better Later Than Never'

Shares of Paypal Holdings Inc PYPL have gained more than 125 percent since the payment name split from its former parent eBay Inc EBAY in 2015, which some investors assume is reason enough to avoid buying the stock at current levels. But this isn't necessarily the case, according to the Street's newest bull analyst.

The Analyst

Cowen's George Mihalos upgraded PayPal's stock rating from Market Perform to Outperform with a price target boosted from $67 to $88.

The Thesis

The case for buying PayPal's stock now is simple: most of the bear theses "have not and will not play out," Mihalos said in Tuesday's upgrade note.

For example, the analyst said he previously thought PayPal's EBITDA growth would fall short of revenue growth. But this isn't the case, as adjusted EBITDA is forecast to outpace revenue growth in 2018 and 2019, while the EBITDA margin is projected to expand by 160 basis points in both years, Mihalos said. 

Another major bear case surrounds PayPal potentially seeing an end to its relationship with eBay, the analyst said. At the very least, the two companies will renegotiate their arrangement, although at less favorable terms — "we believe the impact is manageable," Mihalos said. 

PayPal's stock is trading at a 23x multiple on 2019 estimated free cash flow, in-line with its peers but a discount to the networks. But PayPal boasts one of the "most compelling" growth profiles — 20 percent earnings growth — in the space, which implies there is room for upside in the stock, according to Cowen. 

Mihalos' bullish turn on PayPal is "better late than never," he said. 

Price Action

Shares of PayPal hit a new all-time high of $80.39 on Tuesday and were last seen trading up 1 percent at $79.84.

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