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Does PayPal Stock Deserve a Downgrade?

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Guggenheim cites competitive headwinds

Early this month, Guggenheim downgraded PayPal (PYPL) stock to a “neutral” from a “sell.” The company also removed its $95 price target on PayPal and lowered its 2019 and 2020 earnings estimates for the company. According to Guggenheim, PayPal faces several headwinds, such as competition from Amazon (AMZN) and eBay (EBAY) dropping it as its primary payment partner.

The Wall Street Journal reported last year that Amazon was considering offering its payment service, Amazon Pay, outside its own marketplace in order to process payments for merchants. Guggenheim also sees Brexit as creating more headwinds for PayPal.

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Wall Street is generally positive about PayPal

Not everyone on Wall Street shares Guggenheim’s view of PayPal. Of the 45 companies that cover PayPal stock, 30 have given it “strong buy” ratings, and three have given it “buy” ratings. Some 11 companies have given it “hold” ratings, and just one has given it an “underperform” rating. PayPal’s revenue rose 13% year-over-year to $4.2 billion in the fourth quarter.

Guggenheim’s past actions

Guggenheim previously downgraded CenturyLink (CTL) to a “sell” from a “neutral,” citing various weaknesses in the company, such as its being poorly positioned as a wireline-only business in a rapidly changing industry.

Last August, Guggenheim raised its price target on PayPal competitor Square (SQ), citing bright prospects for the company’s businesses, such as Cash App, a peer-to-peer payment service that competes with PayPal’s Venmo.

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