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Morgan Stanley upgrades PayPal on growth prospects

Morgan Stanley analyst James Faucette has upgraded PayPal Holdings Inc. to "overweight" from "equal-weight," writing that investors are overly concerned about the company's contract renegotiation with eBay Inc.

PayPal separated from eBay in July 2015 but eBay's online marketplace still uses PayPal for processing payments, with the deal set to expire in 2021. Faucette expects PayPal to begin paying rebates to eBay after 2021, a change that could lower EPS by about 20 cents to 50 cents.

But that hit would be relatively small compared with the upside potential for PayPal, the analyst wrote. With a dominant payments brand and platform, the company is best positioned to benefit from the continuing trend of global online payments, Faucette wrote. Those trends would "more than offset" any earnings headwinds from the eBay renegotiation, he believes.

Faucette raised his price target to $76 from $62.