PayPal: 20% Down From Peak, Attractive Ahead Of Q1 Results (Preview)

Company Update (PYPL US) (Buy)

Summary

• PayPal stock fell 3.5% on Tuesday to $250.16, 20% below its mid-February peak, ahead of Q1 results scheduled for Wednesday evening.

• Management targets include growing volume by 25% and EPS by 22% a year on average in 2020-25, and to double free cash flow to $10bn.

• We believe PayPal can grow existing volumes, expand geographically and launch new products; operational leverage is a hidden potential.

• Helped by COVID-19, volume grew 36% and revenue grew 23% in Q4 2020; management expects volume to grow by high 20s even in 2021.

• The Upside Case gives a total return of 83% (18.0% annualized) by 2024; the Downside Case gives an 8.0% annualized return. Buy

Why is PayPal Stock Dropping?

PayPal stock fell 3.5% on Tuesday (May 4). The proximate cause was U.S. Treasury Secretary Janet Yellen's comments on the potential need for interest rates to rise to prevent the economy from overheating.

We originally upgraded our rating on PayPal stock to Buy in May 2020. Since then shares have gained 80%, i…