By Senad Karaahmetovic
Shares of PayPal (NASDAQ:PYPL) are down 1.5% in premarket Wednesday after a Wolfe Research analyst cut the rating to Peer Perform from Outperform.
The analyst sees PayPal highly exposed to a potential recession while he also expects to see shares range-bound in the near term.
“Pending further clarity on the company’s ability to showcase sustainable EPS growth in the high-teens or better, we view a fair value for the stock being in the $80-$90 range, predicated on ~18-20x our 2023 adj. EPS estimate (which incorporates a mild recession), or 24-27x our stock-comp expensed EPS estimate of $3.18,” he told clients in a note.
The analyst expects PYPL to report in-line results, which may be enough for shares to rally as the market is fearing the worst.
“We 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 added.
Elsewhere, the analyst also downgraded Western Union (NYSE:WU) to Underperform from Peer Perform and Meridianlink (NYSE:MLNK) to Peer Perform from Outperform.
As far as the overall Payments, Processors, and IT Services sector coverage is concerned, the analyst believes “a downturn is already being priced in to a degree.” On the ongoing Q2 earnings season, he argues that the “forward-looking commentary will outweigh 2Q prints, perhaps more than normal given the macro backdrop.”