Stock Spinoffs

Barron’s Thinks PayPal Has Lots Of Upside

One the most anticipated spinoffs during the Summer of Spin was eBay’s (EBAY) spinoff of PayPal (PYPL). Both activists (Carl Icahn) and tech kings (Elon Musk) urged the company to make the move, but it didn’t help the initial performance as the stock took a slight dive in its first few days of trading. A few days of trading really doesn’t mean anything and truthfully, that dynamic isn’t atypical for spinoffs. Some were surprised though, but those short-termists can take heart in the fact that Barron’s thinks the decline should be short lived as the company has numerous avenues to grow earnings that could lead to up to 40% of upside in the stock:

Free of its proprietary relationship with eBay (it became a respected brand as the auctioneer’s payment processor), PayPal (ticker: PYPL) has many chances to grow. It can partner with previously off-limits vendors like Staples (SPLS), and build out recent acquisitions that have taken it into areas such as remittances, shared networks, and back-office servicing for companies like Apple (AAPL). It’s also sitting on a pile of cash, courtesy of eBay (EBAY), to grow its fledgling lending business or buy companies.

The piece takes a more in depth look at the various growth pathways and some are quite compelling. It notes that the stock will pop if the company can hit in just one of these areas, making it an attractive bet. There is also some support from the Street with Nomura analyst Bill Carcache quoted as thinking the stock is worth $46 per share. While there are risks to the name including increased competition and potential for losses from the loan book, according to Barron’s, the potential rewards seem to more than outweigh the risks.

Disclosure: Author holds no position in any stock mentioned.

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