While there is heightened geopolitical risk and macro uncertainty, the U.S. labor market remains solid, according to BofA Securities, which made rating changes to four stocks in the payments sector Wednesday.
The Payments Analyst: In separate reports, analyst Jason Kupferberg changed the ratings and price targets for four payment stocks.
BofA Securities analyst Jason Kupferberg downgraded the rating for PayPal Holdings Inc PYPL from Buy to Neutral, while lowering the price target from $175 to $107.
This is a transition year, “as PYPL pursues a strategic pivot, emphasizing average revenue per user (ARPU) over net new customer adds, while coping with ongoing pressures from inflation and supply chain dynamics,” the analyst wrote.
Executing on this transition and trying to accelerate the rollout of newer growth initiatives “could be complicated by fresh macro headwinds related to Russia/Ukraine,” he added.
Kupferberg downgraded the rating for DXC Technology Co DXC from Buy to Underperform, while reducing the price target from $45 to $30.
“DXC faces a potentially daunting challenge of managing its delicate company-specific turnaround amid a macro backdrop that has quickly turned less favorable,” the analyst wrote. He further mentioned the company had acquired Russia-based Luxoft in June 2019 and announced plans to exit the Russian market on March 4.
Automatic Data Processing, Paychex
The BofA Securities analyst upgraded the ratings for Automatic Data Processing Inc ADP and Paychex, Inc. PAYX from Underperform to Neutral, while raising the price targets to $223 and $125, respectively.
Despite the macro changes, Automatic Data Processing and Paychex “standout as high-quality companies with robust profitability, balance sheet, and cash flow profiles,” Kupferberg said.
“The strong U.S. employment backdrop should enable ADP and PAYX to achieve near-term financial targets,” he added.
“We believe ADP and PAYX’s dividend yields of 1.9% and 2.2%, respectively, also offer downside protection for shares, especially considering the predictability of dividend growth,” the analyst further mentioned.
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