Earnings Look Good Enough for PayPal Holdings, Inc. (NASDAQ:PYPL) Stock

Earnings Look Good Enough for PayPal Holdings, Inc. (NASDAQ:PYPL) Stock

PayPal Holdings (NASDAQ:PYPL) released its earnings on Wednesday afternoon — and investors don’t seem impressed by the results, as PayPal stock is little changed since then.

The response is somewhat logical. PayPal’s Q4 numbers did beat analysts’ average estimates, but not by much; investors likely were looking for more fireworks. The company’s outlook for the first quarter and full-year 2020, at least based on the headline numbers, appear somewhat soft. One-time factors played a role, but the Q4 results don’t seem like a massive beat that has materially changed the company’s outlook.

But that’s fine because its outlook didn’t need to change. PayPal remains one of the better growth stories in the market, and PayPal stock has one of the more attractive valuations among growth names. Its Q4 earnings and 2020 guidance were more than enough to keep the company’s outlook intact. In the wake of the results,   PYPL stock is still intriguing for medium-term and long-term investors.

The Headline Results

The lukewarm reaction to PayPal’s earnings does make some sense because its Q4 results and 2020 guidance were essentially in-line with expectations. Its revenue increased 18% year-over-year in Q4, excluding currency fluctuations, as its  transaction payment volume jumped 22%, excluding currency fluctuations.

Its bottom-line performance was even better: as its management noted, the 2.04 percentage point  YoY increase in its operating margin was its biggest such  expansion since PayPal split from eBay (NASDAQ:EBAY) in 2015.

But the growth was mostly expected: its revenue increase was within 0.4 percentage points of the average analyst estimate. A 3 cent beat relative to average earnings per share expectations is nothing new for PayPal, and it’s not terribly surprising in an era in which tech companies almost always beat mean bottom-line estimates.

Post-earnings headlines indicate that the company’s  guidance gave investors some pause. At first glance, PayPal’s outlook does appear to be disappointing. Its Q1 revenue and earnings guidance came in below analysts’ average estimate. Full-year EPS guidance, excluding some items, of $3.39-$3.46 fell shy of the $3.49 mean estimate ahead of the release.

The company’s outlook is better than those headline numbers suggest, however. And its guidance more than enough to keep the company’s attractive long-term outlook intact.

The Case for PayPal Stock

Given the fact that PayPal’s guidance actually looks attractive, PayPal stock looks appealing. The shares trade at about 34 times the midpoint of the company’s 2020’s EPS guidance. That’s a reasonably high multiple,  but not when the company’s profits are growing at an 18%-plus clip, particularly in this market.

Mastercard (NYSE:MA) is trading at a higher multiple to its expected 2020 EPS and its growth rate is lower. Visa’s (NYSE:V) price-earnings ratio is nearly  30. Square (NYSE:SQ) does have more growth potential, but its valuation is much higher than that of PayPal stock.

On a relative basis, then, being long PYPL stock makes sense at these levels, particularly with the shares trading sideways since June.

The shares’ valuation alone makes them attractive. A P/E ratio of 33 isn’t cheap, but PayPal reiterated that it expects to generate 20% annual EPS growth for some time to come. That growth is more than enough to allow the company to grow into its current valuation — and beyond.

Moreover, the company has additional  opportunities in China and other foreign countries, and  its Venmo business can continue to grow. Its loss of revenue from eBay is a concern, but since eBay accounted for only 14% of its total sales, the impact is more than manageable. PayPal should be able to grow despite that development.

PayPal’s strong outlook is what makes PYPL attractive — and its outlook wasn’t changed by the Q4 report.

Technical Indicators

Overall, the bias in prices is: Upwards.

Note: this chart shows extraordinary price action to the upside.

By the way, prices are vulnerable to a correction towards 110.53.

The projected upper bound is: 118.01.

The projected lower bound is: 110.18.

The projected closing price is: 114.09.

Candlesticks

A big black candle occurred. This is bearish, as prices closed significantly lower than they opened. If the candle appears when prices are “high,” it may be the first sign of a top. If it occurs when prices are confronting an overhead resistance area (e.g., a moving average, trendline, or price resistance level), the long black candle adds credibility to the resistance. Similarly, if the candle appears as prices break below a support area, the long black candle confirms the failure of the support area.
During the past 10 bars, there have been 5 white candles and 5 black candles. During the past 50 bars, there have been 23 white candles and 27 black candles for a net of 4 black candles.

Momentum Indicators

Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.

Stochastic Oscillator

One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 54.2425. This is not an overbought or oversold reading. The last signal was a sell 7 period(s) ago.

Relative Strength Index (RSI)

The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 51.88. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a sell 5 period(s) ago.

Commodity Channel Index (CCI)

The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is -89. This is not a topping or bottoming area. The last signal was a sell 4 period(s) ago.

MACD

The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a sell 3 period(s) ago.

Rex Takasugi – TD Profile

PAYPAL HOLDI closed down -3.230 at 113.890. Volume was 36% above average (neutral) and Bollinger Bands were 13% wider than normal.

Open     High      Low     Close     Volume___
116.750 117.320 113.150 113.890 9,467,156
Technical Outlook 
Short Term: Neutral
Intermediate Term: Bullish
Long Term: Bullish
Moving Averages: 10-period     50-period     200-period
Close: 116.20 109.73 109.11
Volatility: 25 23 31
Volume: 8,525,125 7,034,164 6,630,241

Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.

Summary

PAYPAL HOLDI is currently 4.4% above its 200-period moving average and is in an upward trend. Volatility is extremely high when compared to the average volatility over the last 10 periods. There is a good possibility that volatility will decrease and prices will stabilize in the near term. Our volume indicators reflect volume flowing into and out of PYPL.O at a relatively equal pace (neutral). Our trend forecasting oscillators are currently bullish on PYPL.O and have had this outlook for the last 65 periods.

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