Payment Firms Square, PayPal Get Widely Different Views In Eyes Of Wall Street Amid BNPL Woes, Juicy Margins

Raymond James analyst John Davis upgraded PayPal Holdings, Inc PYPL to Outperform from Market Perform with a $123 price target. 

After several consecutive challenging quarters of significant negative estimate revisions, he has higher confidence that forward estimates have bottomed and expects PayPal's depressed multiple to grind higher as estimates rise. 

Davis said the Street's estimates do not fully reflect incremental revenue from rising rates within Other Value Added Services (OVAS), which could help offset any macro-related transaction revenue weakness in 2H22/FY23.

The high margin incremental OVAS revenue from higher rates, the recently announced $15 billion buyback authorization, and the potential to cut operating expenditure further raised his confidence in the stock despite the macro uncertainty. 

PYPL is the type of stock one would want to own in this tape – defensive growth driven by secular tailwinds, significant FCF generation, clean balance sheet, FY23 estimates biased higher, not lower, at a reasonable valuation. As such, Davis recommended that investors initiate or add to positions at current levels. 

Contrastingly, Evercore ISI analyst David Togut double downgraded Block, Inc SQ to Underperform from Outperform with a price target of $55, down from $120. 

Togut sees "growing headwinds" to the company's seller and 'Buy Now Pay Later' businesses, driven by increasing competition, tightening credit, and an expected slowdown in macroeconomic growth. 

While Block continues to make "significant strides" in driving firm growth within Cash App through higher engagement and monetization, weakness within seller and BNPL will pressure total company earnings, given a lower margin profile for Cash App. 

Togut cut the 2023 gross profit estimates by 9% to $7 billion, to 5% below the Street.

Price Action: PYPL shares traded higher by 1.22% at $96.19 on the last check Wednesday.

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