After being under fire from activist investor Carl Icahn, eBay Inc. (EBAY) announced plans back in September 2014 to spin off Paypal Holdings Inc. (PYPL); the digital payments company it acquired more than a decade ago for $1.2 billion. On July 20, Icahn's dream became a reality as Paypal marked its first official day trading as a public company. The spin-off has been causing a stir on Wall Street as investors are viewing Paypal as a new growth option, while eBay's expansion decelerates amid increasing competition in e-commerce.
PayPal started trading yesterday, July 20, with a market capitalization of roughly $46.6 billion, while eBay shrunk to about $34 billion. PayPal's initial offering was priced at $38 per share and jumped approximately 5% to $40.47 in the same day, while eBay closed at $28.57.
SunTrust analyst Robert Peck weighed in on both companies on July 20 in light of the spin-off.
Peck was bullish on PayPal right off the bat, initiating a Buy rating on the stock with a $45 price target, citing that the company is a leader in a “large, growing [total addressable market]” and has more than enough “capital capacity” to fund growth.
Peck comments, “[Paypal] is a leading enabler of online and in-app payments, thus levered to secular growth of electronic payments and e-commerce (16% CAGR), including mobile (28% CAGR).”
The analyst continues, “Per management, inorganic growth is core to the growth strategy and key areas of focus include: in-store (acquisition of a global processor could make a lot of sense), P2P payments, P2P lending, SMB lending, and loyalty/rewards. The company has a strong recent track record of M&A.”
Assuring investors that Paypal can support its growth plan, the analyst adds that the company has more than $6 billion in cash on hand already and the ability to raise about $5 billion in debt.
On the other hand, Robert Peck has less optimistic view on eBay, maintaining a Hold rating on the stock with a $30 price target. He notes that eBay is in the midst of taking its first steps to turn around a period of poor financial performance.
