PayPal Holdings Inc. may see some “short-term upside,” but its stock carries risk amid an uncertain economic backdrop, according to an analyst.
Wolfe Research analyst Darrin Peller downgraded PayPal’s stock
to peer perform from outperform Wednesday as he updated his “base case” model to account for the possibility of a mild recession.
“We see PayPal as being one of the more recession-sensitive names in our coverage universe, given exposure to discretionary and e-commerce spending,” Peller wrote.
PayPal has had a rough stretch lately after rolling back growth expectations and announcing that it would switch up its strategy as it seeks to to prioritize the engagement of existing users over the retention and acquisition of lapsed or new ones. And PayPal’s management team has sounded more cautious than executives at some other prominent payments companies about the impact of macroeconomic issues on results.
The shares have lost 73% over the past year as the S&P 500
has fallen 8%.
Peller wrote Wednesday that PayPal likely “built in enough macro conservatism to reiterate the low end of its FY22 guidance (on a constant-currency basis),” but he’s still cautious about the stock.
“[W]e believe shares are likely to remain range-bound near-to-medium term given fears surrounding macro/recession sensitivity, fears over competitive pressures, uncertainty around management changes and longer-term growth rates,” he wrote. While Peller thinks that PayPal can achieve low- to mid-teens revenue growth over the long run, he also is looking for “proof points that the company can hold its market share and execute on driving incremental engagement within its customer base.”
Despite the downgrade, shares closed up more than 3% in Wednesday’s session.