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PayPal Looks Undervalued But Best Buy Needs A Catalyst

PayPal's Stock Is Undervalued

Summary

  • In this article I look at PayPal from a valuation perspective.
  • PayPal doesn’t look cheap on a relative basis.
  • I forecast PayPal’s consolidated net revenue in a slightly unconventional way.
  • My DCF model yields a fair value close to $41 for PayPal’s stock.

By S. Hasan Abid

PayPal may look a little pricey but the company is executing and worthy of a rich valuation.

The payment landscape is evolving rapidly as more people are adopting mobile devices, owing to which digitization of money is on the rise. Individuals, above all, are looking for trusted payment solutions and PayPal (NASDAQ:PYPL) in this regard stands out. In my last article (read it here) on PayPal, I discussed numerous factors behind the success of this ever-growing payments platform and why so many merchants and consumers globally are drawn to PayPal. These factors include ease of access, reliability and higher conversion rates. Keeping those qualitative considerations in mind, this time I look at PayPal from a valuation perspective.

Sporting a rich forward P/E multiple of 21.3x vs. the average P/E of 16.8x for the credit services industry, PayPal doesn't look cheap on a relative basis. Some would argue that the shares are almost priced for perfection considering the company's TTM P/E of 33.9x, which implies that, assuming price remains unchanged, the market is expecting a ~59% increase in earnings. These are high expectations, even though PayPal has a history of beating analysts' EPS estimates... CONTINUE READING



Best Buy: Without A Catalyst, Cheap Isn't Enough

Summary

  • The departure of Sharon McCollam shouldn’t be taken too negatively.
  • Mobile phone market is quickly reaching an inevitable saturation point which is why I'm worried about BBY.
  • Revenue contribution from the TV category is unlikely to offset the weakness in computing and mobile phones.
  • My one-year target price for BBY is $33.41.

By S. Hasan Abid

There isn't much excitement surrounding Best Buy (NYSE:BBY) right now. The company reported Q1 fiscal 2017 results a couple of days ago and although the quarterly report wasn't too bad, Mr. Market didn't look too impressed. The decline in the stock price post earnings had a lot to do with the departure of CFO Sharon McCollam. She played a key role in improving BBY's profitability and online operations since being brought on board three years ago by CEO Hubert Joly. Sharon undoubtedly is one of the best retail executives out there. But in my opinion, her departure alone isn't something that should cause investors to adjust their existing perspectives on BBY's future.

Corie Barry, who is set to become the new CFO, has been with BBY for 16 years and has loads of experience of working with Sharon herself. Still, Barry is unlikely to have the same influence as Sharon because the efficiencies that BBY's management drove under Sharon are getting to the final stages. But Barry will, nevertheless, fit in seamlessly and is more than capable of doing a reasonably good job for the company... CONTINUE READING

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