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Jan 7, 2020

PayPal and Square rally after analysts turn more bullish

Square, PayPal shares rally after analyst upgrades

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Shares of PayPal Holdings Inc. and Square Inc. gained pre-market Tuesday after separate analysts boosted their ratings on the stocks.

Square has a “favorable setup,” as sentiment on the company is mixed at the moment and it can beat expectations, BofA’s Jason Kupferberg wrote in a note raising his rating to buy from neutral.

“Following significant underperformance in 2019, we see an attractive entry point,” Kupferberg said. He flagged “quarterly execution” and the company’s March 18 analyst day, its first since 2017, as potential catalysts, adding that Square’s 2020 revenue guidance “looks conservative.” Square shares are higher by 3.4 per cent.

Expectations regarding PayPal have been “reset,” Sanford C. Bernstein’s Harshita Rawat wrote in a note upgrading the stock to outperform. She flagged PayPal’s “negative revisions” in the past year, intensifying competition and “execution hiccups” related to partnerships and its Venmo payments app. Paypal gained 29 per cent in 2019, lagging the 44 per cent advance in the S&P 500 Data Processing & Outsourced Services Index.

Now, however, Rawat sees a “compelling one-year bull case,” driven in part by higher expectations from those partnerships, such as with MercadoLibre Inc. and Uber Technologies Inc., along with PayPal’s pricing, Honey online coupon transaction and Venmo monetization. She also sees “sustained potential” for margin expansion and a “palatable” valuation. PayPal’s shares rose 1.5 per cent.

Separately, MoffettNathanson’s Lisa Ellis wrote that — with “resignation” — she has decided to cut Fidelity National Information Inc., Fiserv Inc., ADP, and Accenture PLC to neutral as those stocks are “likely to take a breather in 2020.”

At the same time, she expects payments industry-wide volume growth of 11 per cent in 2020 as her economic outlook for the year remains “healthy.” Payment sector operating metrics, from credit card volume growth, to enterprise IT budget growth, to U.S. employment growth, are all strong, she said.

“In a sector with many strong companies and stocks, we maintain a high bar for a buy rating: An expectation of 20-per-cent-plus stock upside over the following year, with specific catalysts,” she said. Four stocks currently clear that bar: Square, PayPal, Mastercard Inc., and Visa Inc., in that order of preference, she said.

Visa rose 0.4 per cent in pre-market trading, while Mastercard gained 0.3 per cent. Fiserv fell 0.5 per cent and Accenture slipped 1.2 per cent.