Chevron completing the acquisition of Hess following a legal battle with Exxon Mobil opened up a space for a new constituent of the S & P 500 to be added: Jack Dorsey's fintech giant Block (XYZ). Shares jumped nearly 9% on the news Friday and traded roughly 2½ times the average daily options volume, with calls outpacing puts by well over 4:1. Perhaps overshadowed by more recent fintech players more closely associated with crypto, including Block, PayPal remains a dominant player in the digital payments industry. It has an extensive network of over 426 million active accounts, 35 million merchant accounts and global reach. PayPal generates substantial revenue, with total payment volume reaching $1.5 trillion over the trailing 12 months, and adjusted revenue approaching $32 billion for the past year. Its asset-light model and 19% free cash flow margins enable significant share repurchasing. The current program authorizes open market share repurchases of more than 20% of the float at current market prices. Recent strategic partnerships with Adyen , Fiserv , Shopify and Amazon enhance PayPal's market penetration and integration, particularly through Venmo's acceptance at Amazon checkouts. Innovations like Fastlane, a guest checkout solution, and the PayPal USD stablecoin (PYUSD) demonstrate a commitment to capturing emerging trends in e-commerce and cryptocurrency. PayPal's strong brand, high merchant acceptance (76% among top North American and European retailers) and focus on personalization further solidify its competitive moat. As digital commerce continues to grow, PayPal appears well-positioned to capitalize on secular trends for investors seeking exposure to fintech. Despite its strengths, PayPal trades at less than 15 times its FY adjusted EPS estimates of $5.08 per share. Why is that? For one thing, the company's growth has slowed. Consensus estimates for topline growth are just under 3% for FY2025, although a better-than-GDP growth of 5.8% is estimated for FY2026. These growth figures are considerably lower than the company achieved every year over the past decade. Competition from Apple Pay, Google Pay, Block's Cash App and agile platforms like Klarna and Adyen threatens PayPal's market share, particularly as younger demographics prefer alternatives. A Piper Sandler survey ranked PayPal fourth among teens. As earnings approach, however, PayPal is trading at a historic discount to the broader market, trading near all-time highs and at its own historical multiples. The options market is also seeing an above-average move. As I write this, the options market expects the stock to move 8.7% higher or lower by Aug. 1 expiration (which captures earnings on July 29). Down 12% year to date, PayPal has materially underperformed. However, several technical indicators suggest it could be due for a bounce. Perhaps earnings will be the catalyst? The trade A calendar call/spread risk reversal aims to capitalize on the "vol crush" that typically follows earnings, a trade we favor if 1) options prices are fair to over-priced and 2) we have a directional bias - in this case, playing for a bounce. One example is a purchase of calls close to "at-the-money" that expire after the expected Q3 earnings report in late October, as follows: DISCLOSURES: None. All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL'S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
