The company reported record growth in March and April.
Eric Piermont/AFP via Getty ImagesBoth PayPal and Square were trading higher on Tuesday, helped in part by endorsements from Piper Sandler, although the firm says only PayPal is a Buy.
Analyst Christopher Donat initiated coverage of PayPal (ticker: PYPL) with an Overweight rating and $210 price target, calling it “one of the best-positioned companies to take advantage of changes in consumer purchasing behavior due to the pandemic.”
The company reported record growth in March and April, when lockdown orders began in many parts of the country, and Donat says the strength continued through May and June as parts of the economy reopened. Moreover, he argues that the faster account growth that PayPal is seeing could ultimately add 10% or more to the company’s earnings per share.
“We would encourage investors to build or add to positions in PayPal, especially in any future pandemic-related market pullbacks,” he concludes. “We expect PayPal to be one of the better revenue growth stories in the payments sector in coming quarters.”
Donat also likes the prospects for Square (SQ), as it “is one of the best growth stories in the payments space, as demonstrated by annual gross profit growth that has exceeded 40% for the past five years.” In addition, he likes the company’s solid user base, which generates recurring revenue for the firm.
That said, he initiated coverage of the shares with a Neutral rating and $131 price target, writing that he is worried that the company’s focus on small businesses that were overlooked by traditional payment rivals has “left it overly exposed to at-risk companies.”
Square’s loyal customer base includes small shops, salons, and restaurants that have been hit hardest during the pandemic, and this “has negative implications for not just payment volumes but also credit costs,” he says. Thus he thinks the shares are fairly valued at current levels.
Of course, the latter argument might be the most salient with investors, given that Square’s stock has risen just over 100% year to date, and was up another 8.2% to $128.68 Tuesday morning. It has been largely seen as one of the winners from the restrictions imposed by the pandemic.
PayPal stock is up 64.4% in 2020, and was up 2.1% to $179.88 Tuesday morning. The Dow Jones Industrial Average was down 0.7%.
PayPal is another analyst favorite to ride the pandemic wave that has brought so much money into the tech space. Barron’s recently spoke with PayPal’s chief financial officer about the company’s ability to keep capitalizing on recent trends.
Write to Teresa Rivas at teresa.rivas@barrons.com
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PayPal and Square Stocks Are Rising. New Consumer Behavior Is in Their Favor. - Barron's
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