PayPal Could Still Be 20% Too Cheap - Use Options to Play PYPL

Core Viewpoint - PayPal Holdings (PYPL) stock is projected to be worth 20% more based on management's free cash flow (FCF) guidance and an average FCF yield metric, with a potential value of $81.00 per share [1]. Group 1: Stock Performance and Price Target - PYPL closed at $67.30 on September 26, 2025, down from a recent peak of $78.22 on July 28 [1]. - Previous analysis suggested a price target of $88.35 when PYPL was at $67.75, indicating the stock has remained flat since then [3]. - The current price target is updated based on management's FCF guidance from the Q2 earnings release [1][3]. Group 2: Free Cash Flow Analysis - Management forecasts 2025 free cash flow to be between $6 billion and $7 billion, leading to an estimated FCF margin of approximately 19.64% based on projected revenue of $33.09 billion [4]. - Analysts project 2026 revenue could reach $35.06 billion, suggesting a potential FCF increase of 7.9% if the FCF margin remains at 20% [5]. - The trailing 12-month FCF is reported at $5.3 billion, resulting in an FCF yield of 8.24% based on a market cap of $64.3 billion [5]. Group 3: Valuation Metrics - Using management's midpoint FCF guidance of $6.5 billion, the FCF yield increases to 10%, which corresponds to a 10x multiple [5]. - An average multiple of 11x is proposed to value PayPal's estimated FCF for 2026 [5].