Q3 Could Be Quite The Catalyst For PayPal

Jefferies expects third-quarter results from Paypal Holdings Inc (NASDAQ: PYPL) to provide fresh catalysts citing its deep dive into the competitive landscape. The firm believes the company enjoys the "first mover" advantage driven by investments in innovation and expects solid numbers for the three-month period of July to September.

Analysts Jason Kupferberg and Brian Fitzgerald think PayPal's revenue is trending above the medium-term outlook. They pointed out that the stock fell last quarter, citing the possible impact from the Visa Inc (NYSE: V) alliance on medium-term forecast.

Related Link: Bob Peck Previews PayPal's Q3 Results: "Investors Likely To Focus On Impact Of V/MA Deals"

In a research note, the brokerage expressed the opinion, "On the 3Q call, we believe the financial implications of the partnerships will be addressed. Even before these partnerships, PYPL's core performance was trending ahead of its medium-term targets of mid-20 percent TPV growth and 15 percent net revenue growth (const-curr). Given our view that the V/MA deals will drive additional volume to PYPL (see our note dated 9/18/16), we believe it is realistic that PYPL could raise its medium-term guidance for these top-line metrics on the upcoming call."

Jefferies thinks that operating margin would not be as bad as investors' feared though it is a tougher call. While consensus forecast is flat margins for years 2016–2018, medium-term forecast suggested flat to up operating margins.

The brokerage thinks that PayPal is the best way to play in the online or digital payments and advised investors not to get confused with competition. The firm did not see any big impact from Apple Inc. (NASDAQ: AAPL)'s Apple Pay since it could not see any reason for exiting PayPal.

Therefore, the brokerage maintains its Buy rating and $48 as the target price implying more than 20 percent upside potentials.

At last check, the stock traded at $39.30, losing $0.56, or 1.40 percent.

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