On a recent episode of Motley Fool Hidden Gems Investing, hosts Tyler Crowe, Lou Whiteman, and Matt Frankel delved into the latest earnings reports for PayPal and Boeing, alongside a discussion on the electric vehicle (EV) market and the prospects of Lucid.
**PayPal's Earnings and Acquisition Prospects**
PayPal's shares rose about 4% following its earnings report, which Lou Whiteman described as "fine," highlighting a "healthy, stable company." Revenue increased by 5%, and earnings per share beat estimates, though slightly down year-over-year. Total Payment Volume (TPV) was up 10%, with Venmo contributing a significant 14% to this growth. Buy Now, Pay Later volume also saw a 26% increase. Despite these positive indicators, Lou expressed little desire to invest, seeing PayPal as a "single-digit growth story with great free cash flow." The company continues substantial share buybacks, with the share count down 10% year-over-year, spending roughly $6 billion annually. Matt Frankel noted PayPal's impressive $1.83 billion in free cash flow for the quarter and a three-year growth plan outlined to investors.
A key point of discussion revolved around the potential buyout offer from Stripe and private equity firm Advent International, which stood at around $60 per share, compared to PayPal's current trading price of $58. Lou argued this offer was too low, especially considering a "non-affected" price in the $40s. He emphasized that the earnings report showed no distress that would force PayPal to accept a bargain deal. Matt pointed out Venmo's potential for monetization, as it has a similar user base to PayPal but many transactions are currently free. He believes unlocking Venmo's revenue potential, combined with the growth of Buy Now, Pay Later, could accelerate PayPal's top-line growth. Lou doubted the current acquirers could significantly raise their offer due to their 50/50 ownership split. PayPal's CEO, Enrique Lores, indicated the board is open to evaluating any path that creates shareholder value, with reports suggesting they desire an offer closer to $70 per share, while institutional investors might seek $80. Lou concluded that without a higher offer, PayPal would likely remain independent, functioning as a "yield co."
**Boeing's Turnaround and Industry Implications**
Boeing's shares also climbed about 4% after its results, which were "slightly better than expected." While still posting a loss, it was largely attributed to charges from programs like the new Air Force One contract. Lou highlighted the commercial division's 2.7% operating margin as a positive surprise, as a loss was anticipated. Revenue grew 8%, and commercial deliveries were up 14%, with 737 production stabilizing—a rare occurrence in recent years. CEO Kelly Ortberg stated that "uncertainty in the business is going away."
Despite the progress, Boeing still faces a long road. Lou noted the company's substantial $45 billion debt load, a stark increase from less than $10 billion in 2019, which he attributes to pandemic and 737 MAX crisis financing. While he believes the stock is undervalued if operations continue to improve, he cautioned against rushing to invest given the debt. Matt echoed this, stating the market hasn't fully bought into the turnaround, with the stock still down over the past year. However, he pointed to clear signs of improvement, including the FAA restoring Boeing's self-certification authority on July 20th, indicating renewed regulatory trust. Lou noted that the enterprise value is finally back to 2018 levels, but debt continues to divert value from equity holders.
The discussion then shifted to the downstream impact on suppliers. Boeing's commercial booked-to-bill ratio was 1.4x, indicating future revenue growth. However, both Lou and Matt expressed reservations about investing in suppliers due to their high valuations (40-50x future earnings) and existing capacity constraints. While they don't foresee an immediate halt to growth, they questioned if it's the "greatest time to buy in." Matt mentioned GE Aerospace, HowMet Aerospace, and TransDigm as highly valued suppliers, while he still finds Moog (pronounced Moog) interesting at its current valuation.
**The State of Electric Vehicle Adoption and Lucid's Future**
The conversation concluded with an email from a listener regarding slow EV adoption in the US compared to Europe, and the future of Lucid. Tyler Crowe noted the significantly higher EV adoption rates he observes overseas. Lou explained that EVs are still early-generation technology, and the "friction" of recharging, combined with viable alternatives like hybrids and greener internal combustion engines, slows mass-market adoption. He stressed that consumers can already save on fuel without committing fully to EVs.
Regarding Lucid, Lou was pessimistic about its long-term independence, stating, "most auto startups are destined to not be independent over time." He predicted Lucid might not find a buyer and wouldn't be an independent company in a decade. Matt concurred, suggesting Lucid's survival might come through acquisition, but common shareholders could face significant dilution (Lucid's stock is down 99% since its IPO). While acknowledging Lucid's great product and technology, Matt pointed out the company is "bleeding cash."
Matt's preferred EV play is General Motors (GM), which he called a "boring approach." He highlighted GM's financial strength to fund its EV expansion, its position as the number two EV market share holder in the US (behind Tesla), and its growing software revenue stream from technologies like Supercruise, which boosts margins—a feature Lucid lacks. He concluded that GM offers advantages in valuation and financial stability, making it more likely to remain an independent company in the long term. The hosts also reflected on how sustained high oil prices could shift US consumer behavior toward EVs, similar to how falling oil prices in 2014 dampened hybrid sales after a period of high prices.