Barclays analyst Ramsey El-Assal maintains an optimistic outlook on the stock of PayPal Holdings Inc. Despite the wait-and-see approach of investors, El-Assal believes that positive developments will not be far off.

According to El-Assal, PayPal’s transaction margins will face pressure in Q3, but he predicts a significant improvement in the fourth quarter and beyond, extending into fiscal 2024. This projection makes the current period a compelling entry point for potential investors.

El-Assal highlights several factors that can contribute to the improvement of transaction margins. These include an increase in branded checkout volumes, the impact of foreign-exchange hedges, the introduction of new products, and a slower growth rate in the unbranded checkout business. The latter has been a drag on recent margins.

While the unbranded business has adversely affected margins, El-Assal points out that transient issues such as hedging gains and merchant cleanup fees have also played a role. These factors have been overlooked by Wall Street.

Investors will have an opportunity to gain insight into future strategic shifts as they listen to Alex Chriss, PayPal’s new chief executive, during the upcoming earnings call. This will provide clarity on Mr. Chriss’ approach going forward.

El-Assal, who holds an overweight rating on PayPal shares, has set a target price of $88.

In conclusion, while investors are currently cautious, El-Assal’s positive assessment and projection of improved transaction margins make PayPal an appealing prospect for investment.

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