PayPal's (PYPL) recent initiatives to improve its Branded Checkout business are expected to deliver gradual improvement, Morgan Stanley said in a Wednesday note.

The brokerage said Branded Checkout growth remained at about 5% in Q3 and is likely to decelerate in Q4 due to macro uncertainty and a tough comparison with last year's strong holiday season.

While PayPal aims to lift Branded Checkout growth to 8-10% by 2027, Morgan Stanley said it remains unclear when recent initiatives will drive meaningful improvement toward that target. "We think investors may remain skeptical of the company getting to those management targets," according to the note.

The firm noted that PayPal's progress on Pay With Venmo, modern checkout integrations, buy now pay later, and partnerships is "notable," though not yet moving the needle.

Morgan Stanley added that operating expenses are set to ramp beginning in Q4 to support growth initiatives, which could weigh on margins.

The firm lowered its price target on the stock to $74 from $75 and retained equal-weight rating.

Shares of PayPal were down 2.7% in recent trading.

Price: 71.08, Change: -1.94, Percent Change: -2.66