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The Ratings Game: PayPal’s more ‘realistic’ setup sparks optimism

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After making investors sweat for several quarters, PayPal Holdings Inc. faces a “more reasonable” bar, according to Deutsche Bank analyst Bryan Keene.

He wrote in a Sunday note to clients that PayPal
PYPL,
+1.58%

spent the past few quarters making investors wonder whether further cuts to the company’s outlook would be on the way. Now, Keane sees a more “realistic” setup for the payments giant, which has cut its forecast several times this year.

“While it is clear that PYPL will still need to continue gaining share and deepening user engagement, we believe the KPI [key performance indicator] benchmarks the company must hit to meet updated guidance are more realistic than before,” Keane wrote.

He became more optimistic about the prospects for PayPal’s stock in his recent report, boosting his price target to $140 from $114 and keeping a buy rating. The stock is up about 1.3% in afternoon trading Monday and hovering above $97.

Keane sees an “improving outlook” for PayPal and deems that the company is “fully on a path to recovery so long as it can deliver on its new, more achievable expectations.”

Wolfe Research analyst Darrin Peller reiterated a more mixed view on the stock in a Monday note to clients that summed up the bull and bear cases for PayPal.

“Since 2Q results, investors have been incrementally constructive on PYPL and the potential self-help aspects in context to a lower valuation vs. prior years,” Peller wrote. “That said, questions also remain around market share and the appropriate multiple.”

Peller elaborated that PayPal bulls likely see opportunities for the company to at least match the pace of broader e-commerce growth, while they also see the potential for further cost cuts. Bears, on the other hand, likely question how PayPal will fare against competitive pressures from other checkout options.

He has a peer-perform rating on the stock, which is off 48% so far this year as the S&P 500
SPX,
+1.03%

has lost 14%.

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