It’s a famous Wall Street axiom that will always be relevant: ‘buy the fear, sell the greed.’ Given the recent price action of SoFi Technologies (NASDAQ:SOFI) shares (down 26% year-to-date), there seems to be a lot of fear going around.
However, looking at SOFI’s current situation, Truist’s Andrew Jeffrey, a 5-star analyst rated in the top 2% of the Street’s stock pros, is not worried. He recommends that aforementioned age-old play.
“We see opportunity in others’ fear,” says Jeffrey. “Our view is the central debate on SOFI is around credit and potential read-throughs to capitalization. We contend SoFi remains well capitalized, and recent convert tx provide an additional ~200bp buffer.”
Jeffrey’s discussions with investors have revolved around assessing the reasonableness of SoFi’s life-of-loan loss estimates. The analyst believes this is a “point of high leverage,” particularly due to the company’s Held for Sale accounting method, which involves quarterly marking of its loan portfolio. As of 4Q23, SoFi’s assumptions included a 4.8% annual charge-off rate, roughly translating to a 7.2% rate over the life of the loan. This represents a year-over-year increase of 20 basis points, indicating a trend of “normalizing credit.”
Jeffrey thinks the bears are skeptical SOFI can stay in its 7%-8% life-of-loan loss range. “Although nearly impossible to substantiate either side of this argument until/unless mgmt provides visibility into static pool performance, our conversations with SoFi provide confidence that loan performance is tracking to expectations,” Jeffrey said on the issue.
Jeffrey also argues that SOFI stands apart from other Personal Loan (PL) providers due to its data-driven underwriting approach and advanced algorithms. In contrast to competitors, SOFI benefits from access to vast amounts of data, stemming from extensive banking partnerships and its Relay aggregation product. Additionally, Jeffrey emphasizes that declining interest rates are likely to offer a buffer against slightly higher charge-off rates, given that interest rates are a key factor in loan valuation.
“Regardless,” the 5-star analyst goes on to say, “we think investors will gain credit insight in the next few months as loan growth slows and recent vintages season.”
All told, Jeffrey rates SoFi shares a Buy, while his $14 price target implies shares are on course for ~90% returns over the coming year. (To watch Jeffrey’s track record, click here)
Amongst Jeffrey’s colleagues, 3 other analysts are also positive, but with the addition of 8 Holds and 4 Sells, the stock claims a Hold (i.e. Neutral) consensus rating. The average price target stands at $9.09, implying 12-month gain of 23%. (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.
