PayPal Holdings (PYPL) stock dropped 3.3% yesterday, following a rating downgrade from research firm Bernstein. Analyst Harshita Rawat downgraded the stock’s rating to a Hold from Buy, citing limited upside potential based on current share price movement. However, Rawat lifted the price target on PYPL to $80 (1.3% upside potential) from $75.
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Bernstein had initially upgraded the stock, adding it to the tactical list at the end of July. At that time, Rawat was optimistic about the series of product initiatives and execution under new management. However, the current “push/pull dynamics” have compelled the analyst to downgrade the stock, despite product improvements and execution. Year-to-date, PYPL stock has gained 28.6%.
Rawat’s Views on PayPal’s Business
Some of the factors about PayPal that concern Rawat include intense competition and its impact on the cash-cow (or checkout) button. Furthermore, the analyst noted that PayPal’s key product, Venmo, is seeing market share losses in peer-to-peer (P2P) transactions. Also, Braintree’s pricing changes have added uncertainty to its future growth prospects.
Notably, the analyst believes that PayPal’s Fastlane offering, which has recently made some interesting partnerships with Adyen and Fiserv (FI), could take several years to play out. Rawat also believes that PayPal’s gross margins could be negatively impacted owing to its exposure to interest rate fluctuations and may affect its 2025 growth targets.
On the positive side, the analyst noted PayPal’s share buybacks, operational cost reductions, and monetization initiatives.
Overall, Rawat remains hesitant about PayPal stock’s trajectory due to the wider time frames associated with the long-term outcomes of the company’s initiatives.
More About Harshita Rawat
Rawat ranks 1,546 out of the 9,115 analysts ranked on TipRanks. She also boasts a 14.10% average return per rating and a success rate of 64%.
Interestingly, her most profitable and best rating to date has been on PayPal stock. Rawat’s Buy recommendation on PYPL between April 7, 2020 and April 7, 2021 fetched her an enormous return of 154.8%.
Is PayPal Still a Good Stock to Buy?
Wall Street remains divided on PayPal stock owing to similar reasons cited by Rawat. On TipRanks, PYPL stock has a Moderate Buy consensus rating based on 17 Buys versus 15 Hold ratings. The average PayPal Holdings price target of $78.57 implies that shares are almost fully valued at current levels.
