Why This Wedbush Analyst Says PayPal Is A Better Payments Play Than Block

The high-growth technology sector, which is attempting to make a comeback, includes several companies in the IT/services payment industry.

Moshe Katri, managing director of equity research at Wedbush, joined "PreMarket Prep Plus" on Wednesday to discuss the prospects for a few issues in his area of coverage. This article will focus on why he favors PayPal Holdings Inc PYPL over Block Inc SQ.

Katri On Square: Katri has a Neutral rating on the issue and a $100 price target, for Square, which ended Tuesday’s session at $84.60. One primary reason explains why the issue has fallen out of favor with the analyst. 

That issue is the acquisition of AfterPay that took place in July 2021. 

“That transaction exposed them to 'buy now, pay later' service," Katri said. 

"There could be potential credit quality [issues], and the competitive landscape that continues to get even more intense.”

Finally, if you look at the last quarter's numbers, Katri said “the core business is slowing, and that is not good for a company trading at 40-50 times earnings.”

Katri On PayPal: Katri has an Outperform rating on the issue and $110 price target. The issue ended Tuesday’s session at $88.59.

Right from the start, Katri made it clear how bullish he is on PayPal.

“This is properly the most undervalued fintech name in our universe or underutilized platform," he said.

PayPal is a two-sided platform catering to 37-38 million merchants on the e-commerce side of the business and 150-160 million high-value consumers, the Wedbush analyst told Benzinga. 

He attributes the disappointing numbers over the recent quarters to a few factors, primarily that "e-commerce growth has been normalizing to pre-pandemic levels."

What the company has going in its favor is that it has a “significant amount of cash on the balance sheet that will generate a significant amount of free cash flows,” Katri said, adding that PayPal trades at a reasonable valuation of 18-19 times earnings.

The video below covers the discussion on Square and PayPal.

The entire interview begins at the 1:15 mark. Other issues discussed include Visa Inc. V, Mastercard Inc MA and Global Payments Inc. GPN along with commentary on Apple Inc. AAPL's venture into the “buy now, pay later” space.

Photo courtesy of Square.