NEW YORK (TheStreet) - EBay shares let off some steam as the market opened on Wednesday, following a 7.5% rise the day before after the e-commerce company said it would spin off its payments processing unit, PayPal. EBay plans to split PayPal into its own public company in the back half of 2015. The spin off decision is an about face from eBay, which fought with activist investor Carl Icahn earlier this year over the issue. Icahn and eBay came to a settlement in April. Industry analysts say the split was likely a recent decision in answer to new competitive forces, such as Apple Pay. Must Read: 10 Stocks Carl Icahn Loves in 2014 Wall Street analysts were aflutter on Tuesday, many optimistic about the split. However, at least four analysts downgraded eBay following the news due to valuation. EBay shares were down 2.6% to $55.18 on Wednesday. Here's what analysts had to say: Gil Luria, Wedbush Securities (Neutral, $62 PT) We are downgrading shares of EBAY to NEUTRAL from OUTPERFORM and removing EBAY from the Best Ideas List as we believe shares more fully reflect the value of PayPal within eBay upon the announcement of a spin-off. We believe the spin-off of PayPal will help the market assign more accurate valuations for both PayPal and eBay Marketplaces. We believe growth, profitability, and dominant market position of PayPal will become more evident as a standalone business and thus receive a higher valuation multiple. We also believe that as a standalone company, eBay would be in a position to return cash to shareholders in the form of dividends and buy-backs. However, we do not see benefits to the PayPal business from the spin-off and expect some profit leakage to eBay, as well as dis-synergies. Given the more favorable structure to BABA vis-a-vis Alipay, we would expect a commercial agreement between PayPal and eBay to be somewhat less favorable to PayPal compared to the current presentation of the profit split. Must Read: What Went Right for eBay and PayPal Under Outgoing CEO John Donahoe Brian Pitz, Jefferies (Hold, $59 PT) Downgrading to Hold on valuation and increased uncertainty in the NT. We see limited upside from current levels and we'd rather hold AMZN (-19% YTD) than EBAY (+3% YTD). Marketplaces growth has decelerated since the beginning of 2014 (impacted by competition, fee changes at StubHub, security breach, and Panda 4.0), while the proposed spin-off will add a yet unknown amount to operating costs over the next 12 months. Ronald Josey, JMP Securities (Market Perform, N/A PT) While we view eBay's announcement yesterday to spin-off PayPal as the right thing to do long-term, given continued operational challenges within Marketplaces due in part to the security breach announced in May, we believe the shares will be range-bound until operations improve or we get closer to the PayPal spin, which is forecast a year away. Our sum-of-the-parts model for eBay suggests that the shares could be worth ~$62 based on 2016E EBITDA multiples across Marketplaces, PayPal, and eBay Enterprise, suggesting less than 10% upside potential to current levels. To be clear, we continue to believe that eBay's PayPal will remain the leader in online payments, and that Marketplaces can sustainably grow in line with eCommerce growth rates longer-term, but we are stepping to the sidelines on the shares of eBay given valuation, and until we believe operations within Marketplaces are improving. Doug Anmuth, JP Morgan (Neutral, $61 PT) We are downgrading shares of eBay from Overweight to Neutral following the announced separation of eBay and PayPal into independently traded companies in 2H15. We are encouraged by the spin as we believe that each company may be able to operate more efficiently and optimize their capital structures, while also maintaining important relationships and synergies through operating agreements. The combined effects of streamlining operations, potentially reducing headcount, levering up eBay, and possibly repositioning PayPal could ultimately lead to greater value creation across each company post-spin. However, shares have now taken the spin more into account and we believe significant operational improvements may not come until after the companies are separated in 2H15. As a result, we are moving to the sidelines but raising our price target from the previous $56 based on 15x 2016E PF EPS of $3.70 to $61 based on our SOP reflecting 15x 2016E EBITDA for PayPal and 7x 2016E EBITDA for eBay Marketplaces. Must Read: Why Apple Pay May Have Finally Convinced eBay to Spin Off PayPal TheStreet Ratings team rates EBAY INC as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation: "We rate EBAY INC (EBAY) a BUY. This is driven by some important positives, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its growth in earnings per share, revenue growth, largely solid financial position with reasonable debt levels by most measures, good cash flow from operations and expanding profit margins. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity." Highlights from the analysis by TheStreet Ratings Team goes as follows: EBAY INC has improved earnings per share by 8.2% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. We feel that this trend should continue. During the past fiscal year, EBAY INC increased its bottom line by earning $2.18 versus $1.99 in the prior year. This year, the market expects an improvement in earnings ($2.97 versus $2.18). The revenue growth significantly trails the industry average of 43.6%. Since the same quarter one year prior, revenues rose by 12.6%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share. Although EBAY's debt-to-equity ratio of 0.28 is very low, it is currently higher than that of the industry average. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.20, which illustrates the ability to avoid short-term cash problems. Net operating cash flow has increased to $1,494.00 million or 47.77% when compared to the same quarter last year. In addition, EBAY INC has also modestly surpassed the industry average cash flow growth rate of 41.40%. The gross profit margin for EBAY INC is currently very high, coming in at 74.99%. Regardless of EBAY's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 15.48% trails the industry average. You can view the full analysis from the report here: EBAY Ratings Report Must Read: eBay Is Smartly Treating StubHub Like Uber Follow @LKulikowski // 0;if(!d.getElementById(id)){js=d.createElement(s);js.id=id;js.src="//platform.twitter.com/widgets.js";fjs.parentNode.insertBefore(js,fjs);}}(document,"script","twitter-wjs"); // ]]>
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