SoFi Stock: Attractively Priced, Strong Upside Potential

Shares of SoFi Technologies (NASDAQ:SOFI) have crashed about 70% over the past six months. The massive correction comes despite the company’s stellar financial performance and the approval of its much-awaited banking license. 

What irked investors was the extension of the student loan moratorium by the Biden administration. President Biden extended the halt on student loan repayments from May 1 to August 31. This is not good news for SoFi, which benefits from the refinancing of these loans. Accordingly, SoFi lowered its 2022 guidance to reflect the negative impact of the extension of the loan moratorium. 

SoFi now expects to deliver adjusted net revenue of $1.47 billion in 2022, down from its earlier projection of $1.57 billion. Further, it expects to generate adjusted EBITDA of $100 million, down from its previous guidance of $180 million in 2022. 

Now What?

While the student loan moratorium extension will hurt its near-term financials, SoFi could continue to benefit from solid member and product growth. Its member base reached 523K at the end of Q4. Further, SoFi’s products have continually grown at a triple-digit rate for the past several quarters. 

Commenting on the guidance cut, Mizuho Securities analyst Dan Dolev stated, “SOFI’s guide-down due to President Biden’s student loan moratorium extension isn’t surprising” and is “priced into the stock.” Dolev lowered his 2022 estimates and price target to $14 (from $17) to reflect the impact of the extension of the loan moratorium. 

However, he maintained his bullish outlook on SoFi stock as he sees no “incremental weakness,” and the drag on income is due to the extension of the moratorium. 

Along with Dolev, Wedbush analyst David Chiaverini also reduced his estimates but maintained a Buy recommendation on SOFI stock. The analyst views SoFi’s valuation “as attractive relative to its growth prospects.”

Bottom Line

Despite the guidance cut and negative impact of the extension of the loan moratorium, SoFi could continue to grow its financials rapidly. 

Notably, SoFi’s guidance incorporates the moratorium extension beyond August as management believes that the likelihood of a further extension is high given the mid-term elections. Its new adjusted net revenue guidance represents 45% year-over-year growth. Further, SoFi’s new adjusted EBITDA outlook indicates that it could triple, while EBITDA margins could double, which is encouraging. 

While near-term headwinds could play spoilsport, the significant erosion in the value of SoFi stock suggests that negatives are already priced in. Also, the expected decline in its cost of capital following the approval of the bank charter is a positive.

It has received seven Buy and five Hold recommendations for a Moderate Buy consensus rating. Further, the average SoFi price target of $14.86 implies 132.6% upside potential from current levels. 

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