PayPal's Earnings Momentum and Undervalued Valuation: A Buy Ahead of July Earnings?

PayPal (PYPL) is poised to report Q2 2025 earnings on July 29, and investors are watching closely for signs of resilience amid mixed macroeconomic conditions. With an 8.4% EPS growth forecast, a Zacks #2 Buy Rank, and valuation metrics that trail industry averages, the stock presents a compelling opportunity for those willing to look past near-term noise. Let's dissect the data to determine if PYPL is ready for an upward revaluation.

1. Earnings Momentum: A Track Record of Beats and Growing Margins

PayPal's Q2 2025 results already hint at its resilience. Analysts project EPS growth of 8.4% year-over-year, driven by cost discipline and margin improvements. The company's trailing 12-month EPS of $5.06 supports a forward P/E of 13.0, significantly below the industry median of 14.9.

What's more striking is PayPal's history of beating estimates. Its Q2 2025 EPS of $1.33 surpassed the $1.16 consensus by 14.6%, a trend reflected in its 93-basis-point surprise—a stark contrast to the industry's average of 1.2 basis points. This consistency suggests management's focus on profitability is paying off.

2. Zacks #2 Buy Rank: A Signal of Upward Estimate Revisions

PayPal currently holds a Zacks Rank #2 (Buy), a grade historically tied to strong performance. According to Zacks data, stocks with this rank have outperformed the market by an average of +8.5% over the following month. This rank reflects moderate analyst optimism, with 26 analysts projecting Q3 2025 EPS of $1.30. While 7 analysts lowered estimates recently, 2 upgraded theirs—a net positive signaling potential for upward revisions post-earnings.

The Zacks Rank's predictive power is further validated by PayPal's past performance: it has beaten estimates in 7 of the last 8 quarters, often followed by post-earnings pops in its stock price.

3. Valuation Dynamics: Undervalued Relative to Growth Prospects

PayPal's valuation appears mispriced relative to its growth trajectory. Key metrics include:
- Forward P/E of 13.0 vs. industry 14.9: This gap suggests the market isn't fully pricing in PayPal's margin improvements or its strategic initiatives (e.g., PYUSD stablecoin, omnichannel expansion).
- PEG Ratio of 2.2 vs. industry 2.5: While not cheap on a PEG basis, PayPal's 5.9% projected 3-year EPS CAGR justifies its multiple, especially if execution on high-margin services accelerates.

4. Q1 Results and Macro Risks: Short-Term Headwinds vs. Long-Term Catalysts

PayPal's Q1 2025 revenue rose just 1.2% YoY to $7.79 billion, missing expectations, yet non-GAAP EPS surged 23% to $1.33 due to cost cuts. The stock dipped 0.7% post-earnings—a reaction to top-line weakness and management's caution on macro risks like U.S. trade wars and inflation.

However, management's guidance remains constructive:
- Full-year EPS is projected between $4.95–$5.10, implying a 9.88% annual growth rate.
- Free cash flow is expected to hit $6–7 billion, underpinning $6 billion in buybacks—a tailwind for EPS.

The mixed Q1 reaction overlooks PayPal's structural advantages:
- Venmo's 20% revenue growth and debit card TPV up 64% highlight high-margin opportunities.
- AI-driven fraud tools and omnichannel expansion (e.g., NFC in Europe) are reducing unprofitable volume.

Investment Thesis and Risks

Case for Buying Ahead of Earnings:
- Valuation Discount: At $71/share, PayPal trades at a 13.0x forward P/E—cheap relative to its growth profile and cash flow.
- Estimate Revisions: A strong Q2 report could push EPS estimates higher, triggering a rerating.
- Zacks Rank Catalyst: The #2 Buy Rank historically signals a 1–3 month outperformance window.

Risks to Consider:
- Revenue Stagnation: Competitors like Apple Pay and BNPL players could cap TPV growth.
- Regulatory Hurdles: EU tariffs or delays in stablecoin approvals could disrupt cross-border payments.

Conclusion: A Strategic Buy Before July 29

PayPal's consistent earnings beats, improving margins, and undervalued multiples make it a compelling buy ahead of its July 29 earnings. While macro risks loom, the stock's fundamentals—bolstered by strategic initiatives and a Zacks #2 Buy Rank—suggest upward revisions post-report. Investors should consider accumulating shares now, targeting a $75–80 price target if estimates are raised.

In a market wary of growth stocks, PayPal's blend of stability and catalyst-driven upside offers a rare opportunity to buy a beaten-down leader at a discount.