⁠Dimitry Nakhla | Babylon Capital®
A sober valuation analysis on $PYPL 🧘🏽‍♂️

•NTM P/E Ratio: 17.24x
•All-Time Mean: 29.77x

•NTM FCF Yield: 7.79%
•All-Time Mean: 5.02%

As you can see, $PYPL appears to be trading below fair value

Going forward, investors can receive ~72% MORE in earnings per share & ~55% MORE in FCF per share 🧠***

Before we get into valuation, let’s take a look at why $PYPL is a good business

BALANCE SHEET✅
•Cash & Short-Term Inv: $13.62B
•Long-Term Debt: $9.73B

$PYPL has an excellent balance sheet, an A- S&P Credit Rating, & 20.78x FFO Interest Coverage

RETURN ON CAPITAL✅
•2019: 12.4%
•2020: 11.5%
•2021: 13.6%
•2022: 12.7%
•2023: 14.8%
•LTM: 15.8%

RETURN ON EQUITY✅
•2019: 15.2%
•2020: 22.7%
•2021: 20.0%
•2022: 11.5%
•2023: 20.5%
•LTM: 22.0%

$PYPL has strong return metrics, highlighting the financial efficiency of the business

REVENUES✅
•2018: $15.45B
•2023: $29.77B
•CAGR: 14.01%

FREE CASH FLOW❌*
•2018: $4.66B
•2023: $4.22B
•Decrease: (9.44%)

*LTM FCF is $6.70B 📈

*Also, FCF in 2017 was $1.86B, so FCF rose ~150% in 2018 start date (“normalizing” the decline above)

NORMALIZED EPS✅
•2018: $2.42
•2023: $5.10
•CAGR: 16.07%

SHARE BUYBACKS✅
•2015 Shares Outstanding: 1.20B
•LTM Shares Outstanding: 1.08B

By reducing its shares outstanding by 10.0%, $PYPL increased its EPS by 11.1% (assuming 0 growth)

MARGINS✅
•LTM Gross Margins: 39.6%
•LTM Operating Margins: 17.1%
•LTM Net Income Margins: 14.3%

***NOW TO VALUATION 🧠

As stated above, investors can expect to receive ~72% MORE in EPS & ~55% MORE in FCF per share

Using Benjamin Graham’s 2G rule of thumb, $PYPL has to grow earnings at an 8.62% CAGR over the next several years to justify its valuation

Today, analysts anticipate 2024 - 2026 EPS growth over the next few years to be greater than the (8.62%) required growth rate:

2024E: $4.41 (-13.5% YoY) *FY Dec
2025E: $4.83 (9.5% YoY)
2026E: $5.40 (11.7% YoY)

$PYPL has an ok track record of meeting analyst estimates ~2 years out, but let’s assume $PYPL ends 2026 with $5.40 in EPS & see its CAGR potential assuming different multiples

20x P/E: $108.00💵 … ~15.6% CAGR

19x P/E: $102.60💵 … ~13.0% CAGR

18x P/E: $97.20💵 … ~10.4% CAGR

As you can see, $PYPL appears to have attractive return potential if we assume >18x earnings & aggressive return potential if we assume >20x earnings

The 🔑 isn't a mean reversion in $PYPL's multiple, but a modest increase (still below its historical average) - a reasonable and safe assumption

Everyone wanted $PYPL when it traded 50x earnings, not many wanted it when it traded for 12x earnings ☯️

There’s STILL negative sentiment around $PYPL and this sentiment is already being changed as management continues to make progress towards its goals as we’ve seen in the most recent quarters

Today at $77.67💵 $PYPL still appears to be a strong consideration for investment (albeit, with some turnaround & competitive risks)

#stocks #investing
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𝐃𝐈𝐒𝐂𝐋𝐎𝐒𝐔𝐑𝐄‼️: 𝐓𝐡𝐢𝐬 𝐢𝐬 𝐍𝐎𝐓 𝐈𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 𝐀𝐝𝐯𝐢𝐜𝐞. 𝐁𝐚𝐛𝐲𝐥𝐨𝐧 𝐂𝐚𝐩𝐢𝐭𝐚𝐥® 𝐚𝐧𝐝 𝐢𝐭𝐬 𝐫𝐞𝐩𝐫𝐞𝐬𝐞𝐧𝐭𝐚𝐭𝐢𝐯𝐞𝐬 𝐦𝐚𝐲 𝐡𝐚𝐯𝐞 𝐩𝐨𝐬𝐢𝐭𝐢𝐨𝐧𝐬 𝐢𝐧 𝐭𝐡𝐞 𝐬𝐞𝐜𝐮𝐫𝐢𝐭𝐢𝐞𝐬 𝐝𝐢𝐬𝐜𝐮𝐬𝐬𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭.

𝐓𝐡𝐞 𝐢𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧 𝐜𝐨𝐧𝐭𝐚𝐢𝐧𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭 𝐢𝐬 𝐢𝐧𝐭𝐞𝐧𝐝𝐞𝐝 𝐟𝐨𝐫 𝐢𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧𝐚𝐥 𝐩𝐮𝐫𝐩𝐨𝐬𝐞𝐬 𝐨𝐧𝐥𝐲 𝐚𝐧𝐝 𝐬𝐡𝐨𝐮𝐥𝐝 𝐧𝐨𝐭 𝐛𝐞 𝐜𝐨𝐧𝐬𝐭𝐫𝐮𝐞𝐝 𝐚𝐬 𝐢𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 𝐚𝐝𝐯𝐢𝐜𝐞 𝐭𝐨 𝐦𝐞𝐞𝐭 𝐭𝐡𝐞 𝐬𝐩𝐞𝐜𝐢𝐟𝐢𝐜 𝐧𝐞𝐞𝐝𝐬 𝐨𝐟 𝐚𝐧𝐲 𝐢𝐧𝐝𝐢𝐯𝐢𝐝𝐮𝐚𝐥 𝐨𝐫 𝐬𝐢𝐭𝐮𝐚𝐭𝐢𝐨𝐧. 𝐏𝐚𝐬𝐭 𝐩𝐞𝐫𝐟𝐨𝐫𝐦𝐚𝐧𝐜𝐞 𝐢𝐬 𝐧𝐨 𝐠𝐮𝐚𝐫𝐚𝐧𝐭𝐞𝐞 𝐨𝐟 𝐟𝐮𝐭𝐮𝐫𝐞 𝐫𝐞𝐬𝐮𝐥𝐭𝐬.

𝐈𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧 𝐜𝐨𝐧𝐭𝐚𝐢𝐧𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭 𝐡𝐚𝐬 𝐛𝐞𝐞𝐧 𝐨𝐛𝐭𝐚𝐢𝐧𝐞𝐝 𝐟𝐫𝐨𝐦 𝐬𝐨𝐮𝐫𝐜𝐞𝐬 𝐛𝐞𝐥𝐢𝐞𝐯𝐞𝐝 𝐭𝐨 𝐛𝐞 𝐫𝐞𝐥𝐢𝐚𝐛𝐥𝐞, 𝐛𝐮𝐭 𝐢𝐬 𝐧𝐨𝐭 𝐠𝐮𝐚𝐫𝐚𝐧𝐭𝐞𝐞𝐝 𝐚𝐬 𝐭𝐨 𝐜𝐨𝐦𝐩𝐥𝐞𝐭𝐞𝐧𝐞𝐬𝐬 𝐨𝐫 𝐚𝐜𝐜𝐮𝐫𝐚𝐜𝐲.
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⁠Stock Analysis Compilation
Harris Associates on First Citizens BancShares $FCNCA

First Citizens BancShares’ strategic acquisitions, including the value-accretive Silicon Valley Bank purchase, position it for substantial growth, with shares trading at an attractive discount

(Extract from their Q2 letter) https://t.co/3LLGfjz2ld
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⁠Quiver Quantitative
The House Homeland Security Committee is about to hold a hearing on the global CrowdStrike outage.

Marjorie Taylor Greene has bought up to $30K of CrowdStrike stock in the last month.

She sits on the House Homeland Security Committee.

Will watch the hearing and post updates. https://t.co/A6UGGvS2Rz
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⁠Quiver Quantitative
Didn’t think I’d see this today.

Bernie Sanders just quoted Elon Musk at the Ozempic hearing: https://t.co/nGTE52koh5
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⁠Investing visuals
Visa $V is down 4% today following news that the Justice Department plans to file a lawsuit against the company, accusing it of monopolizing the U.S. debit card market.

Would this change your investment thesis for $V and could this benefit $MA? 🔍👀 https://t.co/33Rkg62Gd8
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⁠Librarian Capital
Some companies blame exits from Russia for part of sales declines

British American Tobacco $BATS blamed Russia exit for 3ppt of sales decline in 24H1
Pernod Ricard $RI blamed same for ~1ppt in FY24

But, as motor example below shows, Russia sales may not be lost, just re-routed

🚨This is the story of how UK & EU goods are STILL going into Russia in vast quantities, despite sanctions.
Of how the economic war waged by the G7 is failing.
Of how I witnessed sanctions rules broken in plain sight.
But above all else it’s the story of a chart... 🧵 - Ed Conway
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⁠Hidden Value Gems
Some observations about the Japanese market by the First Eagle team 🇯🇵💹👇🏽

✅"With surging corporate profits helping to rekindle animal spirits, the Nikkei 225 Index in February 2024 reclaimed its previous 1989 peak and subsequently set a series of new record highs before the early-August selloff."

✅"Notably, however, the benchmark’s 34.4% gain in local-currency terms over the past 32 months translates into a mere 3.8% when denominated in dollars; the S&P 500 Index is up 20.9% over the same period."

✅"Improved corporate governance standards may provide long-term structural underpinnings to Japanese equities."

✅"Given that more than 50% of Japanese companies have cash balances that exceed debt, which often coincides with sub-standard returns and low valuations, ample runway may be available for additional dividend increases and share buybacks."

✅"As investors have continued to favor passive investment strategies, very large cap constituents of Japanese indexes have done especially well amid recent market strength.T his may suggest latent opportunity in a more eclectic group of companies whose qualities have yet to be fully recognized by the markets."
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⁠Quiver Quantitative
Watching the SEC hearing.

Gary Gensler just gave his opinion on AI, Scarlett Johansson, and the movie Her: https://t.co/YyxvagGka7
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⁠Hidden Value Gems
A Brazilian holding company idea (First Eagle) 👉🏼Itaúsa $ITSA4.BR

✅"Its primary asset here is Itaú, the largest Brazilian bank, which makes up roughly 80% of the total holding-company value."

✅"Other investments include Alpargatas (shoes and apparel), CCR (Brazilian airport and highway concessions), and Nova Transportadora do Sudeste, which transports roughly 50% of the natural gas consumed in Brazil."

✅"The holding company trades at an 18% discount to estimated net asset value, while Itaú shares on their own trade at what he considers an overly discounted 8x estimated forward earnings."

✅"Roughly two-thirds of the stock floats freely and the other one-third is owned by the Egydio de Souza Aranha family."
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