PayPal, Toast shares hit with downgrades - but other payments picks have shine

By Emily Bary

BofA sees upside in Discover, Capital One shares

PayPal Holdings Inc. shares are on track to suffer their third down year in a row, but BofA Securities analyst Jason Kupferberg doesn't see an easy return to their former glory.

The company is due for a "transition year," he wrote Wednesday, as he downgraded PayPal shares (PYPL) to neutral from buy.

PayPal's new chief executive and chief financial officer will "seek to earn Street credibility while driving sustained improvements in top-line metrics, especially transaction profit growth, which will likely take time," according to Kupferberg.

He expects PayPal's stock to be "somewhat range-bound" as various factors offset. For example, the company has "a strong brand and balance sheet," but consensus expectations for next year might be elevated, in his view.

Despite the downgrade, PayPal shares were up 1.6% in Wednesday morning action.

See also: PayPal brings on Fiserv veteran as it continues leadership shift

Kupferberg also moved to the sidelines on shares of Toast Inc. (TOST), which have declined 17% this year. His downgrade of Toast's stock, to neutral from buy, comes "primarily on slower top-line momentum and increasing competition."

Toast shares were near flat in Wednesday morning action.

Read: Block's stock could be the new Meta - at least in one big way

Kupferberg turned bullish on two credit-related names, upgrading shares of Discover Financial Services (DFS) and Capital One Financial Corp. (COF) to buy from neutral.

"Historically, stock prices/company valuations appreciate meaningfully aspeak delinquencies come into view," he wrote. "We think this could happen in the next [three to six] months and we think it is time to get incrementally more bullish on the credit card stocks."

Discover shares were up 5.4% in morning activity and on track for their largest single-day percentage gain since Nov. 10, 2022, according to Dow Jones Market Data. Capital One shares were up 1.9%.

-Emily Bary

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12-06-23 1105ET

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