PYPL pops on buyout buzz, but Wall Street isn’t sure it’s durable

Investors have had a beat to digest the takeover chatter swirling around PayPal, but the verdict is still far from unanimous. PYPL stock surged as much as 9% after reports that multiple financial players are exploring a potential deal.

But with the company’s fundamentals under scrutiny, some skeptics wonder if the buzz is being fueled by anything more than headline-driven hype.

The surge hits a snag

Tuesday’s session got started with a cooldown of the previous day’s excitement. Shares pulled back modestly but recovered by the afternoon and skyrocketed minutes before the closing bell on fresh reports that Stripe is considering an acquisition bid.

Even as the longer-term picture is less than encouraging, PYPL stock remains up solidly for the week.

Here’s a breakdown of relevant stats:

• Shares are down roughly 40% year over year
• They’re trading off about 85% from the 2021 peak
• Q4 EPS ($1.23) missed expectations ($1.29)
• Revenue also disappointed $8.68B vs. $8.79B

The earnings miss reinforced preexisting concerns, such as slowing branded checkout growth, rising competition from Tech giants like Apple and Google, and softer consumer spending.

A leadership shakeup with Enrique Lores set to take the helm has added more volatility to the mix. And Wall Street has grown more cautious as a result, with several recent downgrades.

Nevertheless, the average analyst price target still sits north of $50 a share, implying modest upside from current levels.

What it means for performance

The buyout narrative is doing a lot of the short-term heavy lifting, but fundamentals matter in the long run. And that’s where some institutions see a bullish setup.

Mizuho calls PYPL “deeply undervalued” and shares are trading at well below historical averages at 7x estimated next-year earnings. And with roughly 231 million monthly active users, nearly $2 trillion in payment volume, and Venmo as a valuable asset, the company is clearly an industry giant in terms of scale.

But skepticism continues to fuel a bear case for PYPL stock.

Core checkout business is losing share and some analysts expect branded volume to shrink through 2028.

Oh, and as for that buyout chatter, insiders say don’t hold your breath. A full-company buyout is considered unlikely due to PayPal’s $40 billion-plus size. A likelier outcome, market watchers say, would be the sale of assets like Venmo or Braintree.

Buyout rumors are almost unparalleled in their ability to spark sharp rallies, but sustainable gains require clear signs of progress and improvement. Shares might look tempting at their current valuations, but big money is treating the PYPL turnaround with a wait-and-see attitude.