Goldman Maintains Buy On PayPal, Sees Near 30% Upside

• Paypal Holdings Inc PYPL has seen a 3.61 percent jump in its share price over the past month, with a high of $35.23 on October 23.
• Goldman Sachs’ Heath P. Terry has maintained a Buy rating and price target of $45 on the company.
• Terry has added the stock to the Americas Conviction Buy List due to the company’s solid growth trajectory and compelling stock valuation, with the potential upside of 29 percent.

Analyst Heath Terry mentioned that PayPal’s full-year TPV growth guidance could prove conservative, given the recent trends in Braintree and TPV growth at large merchants. In addition, regulatory changes in Europe could lead to margin benefits during 2016-17.

According to the Goldman Sachs report, “PayPal’s TPV growth is primarily driven by growth in active users and wallet share, merchant adoption, and Braintree, which facilitated $12bn in payment volume in 2013 and is on track to reach $50bn this year.”

Heading into Q4, Terry expects initiatives, such as return shipping reimbursement, could drive market share gains for the company. However, the take rate declined in 2Q15, primarily driven by the mix shift to Braintree, larger merchants and growth in offline.

However, FX-neutral TPV growth has accelerated, and Terry expects PayPal to “continue to trade take rate for growth, given the potential in the areas and the broader competitive environment.”

In addition, the company is expected to transaction margin gains for 18-24 months from lower network costs, following the enactment of the EU Interchange regulations, expected in December 2015.