TD Cowen analyst Bryan Bergin believes that PayPal Holdings Inc. has numerous catalysts ahead, but he also considers it a "show-me" story for now. In his coverage initiation report, Bergin has given PayPal shares a market-perform rating with a target price of $66. While the company has shown signs of recovery and has promising potential for capital allocation, Bergin seeks more clarity on several uncertainties surrounding PayPal.

One of the major unknowns is the recent change in leadership, with a new chief executive taking over and the potential addition of a new chief financial officer. Furthermore, the pace of PayPal's branded-checkout recovery remains uncertain, as does the durability of discretionary e-commerce spending given the current macroeconomic climate.

Bergin highlights the amplified challenges faced by PayPal, which has seen its shares being materially pressured. The company is dealing with rising concerns about weakening consumer confidence, macroeconomic volatility, competition that threatens its core business, perceived market share loss to competing checkout solutions, the adverse impact of a shift in product mix from branded to unbranded, and a maturing financial profile.

According to Bergin, PayPal has made progress in correcting its course with its branded checkout offering over the past year. However, the crucial factor now is to scale globally, increase usage, and convince investors that its best days are still ahead.

Read: PayPal’s 'Fresh Start': Analyst Cautions that It May Not Be Enough to Boost Stock

Overall, while PayPal has promising prospects, it needs to address these uncertainties and demonstrate its ability to navigate the challenges ahead to gain more investor confidence in the near term.

PayPal's Strong Financial Position Offers Promising Opportunities for Investors

At a time when many investors are seeking reassurance, PayPal stands out with its strong financial position that promises attractive returns for shareholders. According to Bergin, the company's ample room for capital-allocation positions it favorably to deliver. In fact, the expected improvement in free-cash-flow conversion by 2023 presents an even greater opportunity for an aggressive share-repurchase program. Furthermore, PayPal could potentially establish a dividend, serving as a catalyst for the company's shares.

Shares of PayPal appear de-risked due to their recent stock price performance, which has led to a deeply discounted valuation. This, coupled with estimates that reflect a more mature financial profile, has intrigued investors on Wall Street who now see significant upside potential. However, Bergin remains cautious about the impact of PayPal's unbranded Braintree business on margins, calling for further evidence that the higher-margin branded business is turning around.

Square's Promising Future in the Fintech Industry

In contrast to his reservations about PayPal's margin concerns, Bergin expresses a more optimistic outlook for Square parent company Block Inc. He initiates coverage of the company with an outperform rating and sets a $59 price target.

Block Inc. has established a fundamentally differentiated ecosystem in the Fintech industry and possesses the ability to grow and integrate its solutions, placing it among the most likely challengers to industry norms. With Square's stock experiencing recent underperformance, investors are eagerly looking forward to potential management shakeups that could inject much-needed energy into the company.

Read: Block's Stock - A Laggard in Need of a Jolt?

In conclusion, PayPal's strong financial position and Square's fundamentally differentiated ecosystem in Fintech present appealing investment opportunities for shareholders. Both companies have unique strengths that position them favorably for future growth and success in their respective industries.

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