After being spun-off from eBay in July, PayPal Holdings Inc. (NASDAQ: PYPL) is making headway in the market despite a slight decline in its price. One key analyst believes that this company has a solid outlook for the coming year and great upside potential.

Argus initiated coverage of PayPal with a Buy rating and a target price of $42, implying upside of about 23% from current prices. Also the firm initiated a 2015 EPS estimate of $1.25 and a 2016 EPS estimate of $1.51, which assumes 21% growth next year. PayPal, which split from eBay in July 2015, is taking advantage of the changing payments landscape, and the firm believes that several trends favor the company’s growth. These include greater adoption of mobile devices for payments and the technological integration of different payment types and channels. With 169 million active accounts, PayPal is a leader in innovative payment mechanisms and has strong brand recognition.

Unlike other major credit card companies like MasterCard or Visa, PayPal’s network enables account holders to both pay and be paid for merchandise or services. eBay accounted for about 24% of the company’s total payment volume in 2014, although Argus expects this percentage to decline as PayPal expands its network of accepting merchants. It is accepted at more than 70 of the top 100 retailers in the United States, and the firm expects even greater penetration in the next year. Total payment volume rose 26% to $235 billion in 2014, and payment transactions rose 22% to 4.0 billion.

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In Argus’s view, the company has several strengths that put it ahead of the competition as it seeks to grow payment volumes. These include a strong international presence, with 100 million non-U.S. users in more than 200 countries. The company also provides merchants with end-to-end payment authorization and settlement capabilities, as well as instant access to funds.

The acquisition of Braintree in December 2013 expanded the PayPal’s position in mobile payments and extended its offerings to retailers that primarily use mobile applications. The Braintree acquisition included Venmo, a mobile application that allows money transfer between friends and family, allowing PayPal to compete aggressively with Western Union. Even more recently, PayPal is continuing to expand as it announced an agreement to acquire Xoom, a digital money transfer provider, for about $890 million.

Argus noted in its report:

We note that net revenue as a percentage of total payment volume, currently at 3.4%, is likely to decline as the company integrates Braintree and adds larger merchants, which have lower margins. However, operating margins should also benefit as the company leverages its network scale.

The company has been transparent with its 2015 financial goals, which include revenue growth of 15%-18%, an operating margin of 20%-21%, free cash flow of $1.6-1.8 billion, and capital expenditures of 8%-10% of revenue. Medium-term goals include revenue growth of 15%, stable to growing operating margins, and free cash flow growth in line with revenue gains.

Shares of PayPal were up 1.3% to $34.20 Wednesday morning. The stock has a consensus analyst price target of $43.43 and a 52-week trading range of $30.00 to $42.55.

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