It's been a pretty great week for PayPal Holdings, Inc. (NASDAQ:PYPL) shareholders, with its shares surging 14% to US$270 in the week since its latest yearly results. Revenues of US$20b fell slightly short of expectations, but earnings were a definite bright spot, with statutory per-share profits of US$3.54 an impressive 24% ahead of estimates. Following the result, the analysts have updated their earnings model, and it would be good to know whether they think there's been a strong change in the company's prospects, or if it's business as usual. We thought readers would find it interesting to see the analysts latest (statutory) post-earnings forecasts for next year.
Taking into account the latest results, the current consensus from PayPal Holdings' 42 analysts is for revenues of US$25.4b in 2021, which would reflect a major 25% increase on its sales over the past 12 months. Per-share earnings are expected to grow 18% to US$3.16. In the lead-up to this report, the analysts had been modelling revenues of US$25.4b and earnings per share (EPS) of US$3.21 in 2021. So it's pretty clear that, although the analysts have updated their estimates, there's been no major change in expectations for the business following the latest results.
The consensus price target rose 12% to US$285despite there being no meaningful change to earnings estimates. It could be that the analystsare reflecting the predictability of PayPal Holdings' earnings by assigning a price premium. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. Currently, the most bullish analyst values PayPal Holdings at US$350 per share, while the most bearish prices it at US$124. This is a fairly broad spread of estimates, suggesting that analysts are forecasting a wide range of possible outcomes for the business.
Of course, another way to look at these forecasts is to place them into context against the industry itself. The analysts are definitely expecting PayPal Holdings' growth to accelerate, with the forecast 25% growth ranking favourably alongside historical growth of 16% per annum over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to grow their revenue at 14% per year. It seems obvious that, while the growth outlook is brighter than the recent past, the analysts also expect PayPal Holdings to grow faster than the wider industry.
The Bottom Line
The most obvious conclusion is that there's been no major change in the business' prospects in recent times, with the analysts holding their earnings forecasts steady, in line with previous estimates. Fortunately, they also reconfirmed their revenue numbers, suggesting sales are tracking in line with expectations - and our data suggests that revenues are expected to grow faster than the wider industry. There was also a nice increase in the price target, with the analysts clearly feeling that the intrinsic value of the business is improving.
With that in mind, we wouldn't be too quick to come to a conclusion on PayPal Holdings. Long-term earnings power is much more important than next year's profits. We have forecasts for PayPal Holdings going out to 2025, and you can see them free on our platform here.
That said, it's still necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with PayPal Holdings , and understanding them should be part of your investment process.
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