Xoom Shares Are Now Trading Near The PayPal Buyout Price (And Have Little Upside)

In a report published Tuesday, Barclays analyst Darrin D. Peller downgraded the rating on Xoom Corp XOOM from Overweight to Equal-Weight, while raising the price target from $20 to $24, saying that the shares were trading close to the acquisition price.

Paypal Holdings Inc PYPL had agreed to acquire Xoom for $25 per share in a deal that is expected to close in 4Q15. While Xoom’s shares are now trading close to this price, if the agreement with PayPal were to be terminated, “we believe Xoom would underperform on the basis of softening trends,” analyst Darrin Peller said.

Peller believes that there is a “strong strategic rationale” for PayPal’s decision to acquire Xoom and the deal could be highly accretive in the longer term for PayPal’s shareholders. In an earlier report by Keefe, Bruyette & Woods, analyst Sanjay Sakhrani had elaborated on the advantages the Xoom acquisition would offer PayPal.

The Barclays report noted that Xoom’s 2Q results were “relatively soft,” with 16 percent Y/Y revenue growth and adjusted EBITDA of $3.9mn and EPS of $0.06 hitting the low end of the guidance. “While results were not necessarily poor, we believe that had it not been for the deal with PYPL, Xoom would have seen weakness in the next day’s trading given high expectations and P/E multiple.”

The analyst added, however, that there was “limited upside” in Xoom’s stock price and “increased risks to Xoom’s growth story as a stand-alone company.”