The pandemic has been very good to two payment stocks as the shift to shopping online has accelerated.
PayPal (NASDAQ: PYPL) and Square (NYSE: SQ) have both exploded higher this year, with PayPal gaining 140% since the market’s March 23 bottom, and Square shares skyrocketing 366.6% in the same time frame.
And as consumer and businesses shun cash amid the coronavirus pandemic, analysts say the two stocks are poised to post more gains.
Deutsche Bank’s Bryan Keane said this week that the growth PayPal has seen this year—with the company posting record new accounts this year and a surge in payments volume—could actually be accelerating, fueling revenue and earnings growth that will likely beat analysts’ estimates.
“We believe PYPL could actually show accelerating trends through the quarter and sustainably higher long-term growth” from strength in new accounts and additional revenue streams picking up, Keane said in a note.
Keane sees potential for “low 30%” constant-currency revenue growth in the third quarter, higher than PayPal’s guidance for 25%, and believes earnings per share could grow 36%.
Further, Keane said PayPal has “ample room to raise guidance throughout the year.”
Keane rates PayPal shares a Buy and issued a $234 price target on the stock – nearly 19% higher than the price as of this writing.
As for Square, Oppenheimer analyst Jed Kelly says the stock could see more gains ahead, even after its 169% climb so far this year. Kelly upgraded the stock to Outperform in a note this week and issued a $185 price target, indicating nearly 10% upside from Thursday’s close.
According to Kelly, the pandemic is “pulling through a massive shift in digital commerce requiring merchants to rapidly adopt omnichannel solutions” for selling goods both in store and online.
“We see SQ’s two-sided networks of sellers and consumers positioning the platform as a structural winner during the recovery to sustain elevated growth levels for multiple years,” Kelly said, adding that the company’s total addressable market is worth $160 billion.
One headwind for Square, however, is that thousands of its small business customers have shut down during the pandemic. While that creates near-term revenue headwinds for the company, Kelly says it has “best-of-breed competencies” with merchants, positioning Square for “outsized share gains as economic activity normalizes.”
Loop Capital Markets is bullish on both stocks, initiating coverage last week with Buy ratings on both citing their recent outperformance and flagging “multi-faceted opportunity” in consumer and merchant markets as catalysts.
But Strategic Wealth Partners’ Mark Tepper said that amid the flurry of upgrades, between the two, he’s prefers PayPal.
“When it comes down to PayPal vs. Square, I prefer PayPal,” Tepper said. “When I think of Square, I think of… the mom-and-pop shops that were hurt the most during this crisis. I’d rather own the pure play e-commerce – and e-commerce has almost doubled since the beginning of the crisis. And I also want the diversification of [business to business] and [business to consumer]. That’s PayPal.”