Following SoFi Technologies’ (NASDAQ:SOFI) 1Q23 results and 10Q disclosure of a rather big positive fair value mark along with language that indicated the company might have to raise capital should it not reach GAAP breakeven in C24, the shares tanked.
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Truist analyst Andrew Jeffrey’s opinion on these issues was that they were “relatively benign,” yet he admits it has taken the fintech firm a “concerted effort to quell investor concern.”
“Although still controversial,” the 5-star analyst went on to add, “we believe SoFi’s efforts to educate investors about its strategy, liquidity, fair value accounting, financial model and credit quality are paying dividends.”
You can say that again. Since the mid-May lows, the shares have doubled in value, a development also spurred along by a “growing appreciation for the opportunity to take deposit share and deploy liquidity into high-ROE loans.” Not to mention, the debt ceiling legislation that will bring to an end the moratorium on student-loan repayments acting is another tailwind.
But there are other positive developments taking place. On top of the fair value accounting concerns, which Jeffrey considers as “overblown,” the language regarding a possible capital raise also spooked investors. However, for Jeffrey, that is now not an issue. After reviewing his model, the analyst is “comfortable that operating leverage and lower SBC (stock-based compensation) will allow the company to earn a small 4Q23 GAAP profit with ongoing C24 margin expansion.”
It’s not only these concerns which are abating. Jeffrey believes there’s a “growing appreciation” for how the company is positioned to compete.
In fact, given SoFi’s superior app, UX, high 4.3% APY savings and small size, Jeffrey sees the firm as among the “biggest beneficiaries” of large bank deposit loss. “Our view is that post-bank-failure concerns about heightened regulation have passed, and investors recognize that arbitrary changes to held-for-sale accounting rules are unlikely,” Jeffrey explained.
The upshot of this is that investors will turn their focus to the company’s long-term growth outlook, a positive development still just “partly reflected in recent strength.”
Based on all the above, then, Jeffrey thinks a price target hike is in order. As such, his figure moves from $8 to a Street-high $11, suggesting the shares will notch growth of another 17% over the one-year timeframe. Unsurprisingly, Jeffrey’s rating stays a Buy. (To watch Jeffrey’s track record, click here)
Elsewhere on the Street, the stock claims an additional 7 Buys, 5 Holds and 1 Sell, all culminating in a Moderate Buy consensus rating. However, most seem to think the shares have soared enough for now; the average price target of $8.18 implies the stock has downside of 13% from current levels. (See SoFi stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
