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Bernstein Ponders Potential PayPal M&A

Shanthi Rexaline

In a note released Wednesday, Bernstein discussed the various permutations and combinations concerning M&A involving Paypal Holdings Inc (NASDAQ: PYPL). The firm noted that its early July upgrade of PayPal was based on a predicted strategic acquisition it will likely make in the coming months.

As such, the firm maintains its Overweight rating and $66 price target for the shares of PayPal.

Analyst Lisa Ellis listed the potential acquisition targets, categorizing them as top candidates and less-likely candidates.

Top Candidates

  • Adyen: $5 billion, plus, price tag; Braintree of continental Europe.
  • Klarna: $2.5 billion, plus, price tag; PayPal credit++ of Scandinavia.
  • Square Inc (NYSE: SQ): $10 billion, plus, price tag; merchant of record capabilities and in-store SMB presence synergistic.
  • Stripe: $9 billion, plus, price tag; Braintree competitor.

See also: The Spin-Off ETF Spins To New Highs

Less Likely Candidates

  • WIRECARD AG UNSPON ADR EACH REP 0.5 ORD (OTC: WCAGY): $11 billion, plus, price tag; WORLDPAY GRP PLC UNSPON ADR EACH REPR 3 ORD (OTC: WPYGY) of Germany.
  • Shopify Inc (US) (NYSE: SHOP): $11 billion, plus, price tag; SMB-centric e-commerce service provider.
  • Sumup: mPos provider.
  • Transferwise: Xoom competitor.
  • Nets: $5 billion, plus, price tag; Vocalink of Nordics.
  • Synchrony: credit partner.
  • Vantiv Inc (NYSE: VNTV)/Worldpay.
  • Global Payments Inc (NYSE: GPN).
  • First Data Corp (NYSE: FDC): processing partner.
  • Discover: In-store partner.

PayPal Unlikely To Be Acquired

Meanwhile, Bernstein believes PayPal is unlikely to be acquired, given that few players can afford a $75 billion, plus, price tag. Additionally, the firm believes PayPal is likely more valuable independent than owned by those that could.

The firm sees dis-synergies or unclear deal rationale if PayPal was bought by Amazon.com, Inc. (NASDAQ: AMZN), Apple Inc. (NASDAQ: AAPL), Alphabet Inc (NASDAQ: GOOGL) (NASDAQ: GOOG), Facebook Inc (NASDAQ: FB), Visa Inc (NYSE: V), Mastercard Inc (NYSE: MA), JPMorgan Chase & Co. (NYSE: JPM) or Wells Fargo & Co (NYSE: WFC).

Although a merger with Alibaba Group Holding Ltd (NYSE: BABA)-owned AliPay would make sense, the firm feels the merger would likely be stymied by regulators. The firm also ruled out American Express Company (NYSE: AXP) interested in PayPal, as it would now conflict with Choice.

That said, Bernstein believes the strong performance will continue over the coming year, catalyzed by a likely strategic acquisition, the forthcoming credit partnership intended to shift the company's credit business off-balance sheet and earnings outperformance, driven by recent pricing actions and the rollout of Choice

Related Link: What Will Alibaba Do With MoneyGram?
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Image Credit: By Sagar Savla - Own work, CC BY-SA 3.0, via Wikimedia Commons

Latest Ratings for PYPL

Date Firm Action From To
Sep 2017 KeyBanc Maintains Overweight
Sep 2017 Barclays Maintains Overweight
Jul 2017 Raymond James Maintains Outperform

View More Analyst Ratings for PYPL
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