Guggenheim Securities analysts Jeff Cantwell and Spencer Kennedy upgraded PayPal Holdings Inc. to "neutral" from "sell" and removed the previous price target of $104.
Since the company's shares have fallen below the price target, Cantwell and Kennedy wrote that the risk and reward for owning the company's stock is now more balanced. They also wrote that they will not assign a price target.
The analysts said that since their last report, they have seen signs that the regulatory environment regarding Strong Customer Authentication is changing, as the Central Bank of Ireland said it will delay the implementation of the rules, for example, and that economic data from the U.K. has gotten worse. The British economy contracted 0.2% in the second quarter, as Brexit uncertainty has hurt business investment, and the pound sterling continues to fall versus other major currencies.
Cantwell and Kennedy noted that executives of other companies have voiced expectations regarding the persistence of weakness in U.K. consumer spending and slowing quarter-over-quarter organic growth. The analysts said Brexit will be a headwind for all companies with exposure to the U.K., including PayPal, in 2020.
The analysts previously made a "sell" recommendation on PayPal's shares, saying the company's move to lower its full-year 2019 revenue guidance was a "wake-up call" and that PayPal will face various headwinds such as implementation of Strong Customer Authentication in Europe; Brexit; departures of key executives; and increased competition in the payments market. About 11% of the company's revenue comes from the U.K., and with the economy likely to slow down due to Brexit, payments volume growth is likely to decelerate as well.