Sentiment can shift fast on Wall Street, something SoFi (NASDAQ:SOFI) investors can tell you all about. In fact, the pace of change over the past week alone has been particularly eye-catching.
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The week began on a high note after the neo-bank’s 4Q23 print showed the company had swung to profitability, as per its promise. Shares responded accordingly, soaring by 20% in the session.
However, since then, a big chunk of those gains has been handed back to the market after an analysis of the company’s prospects by Morgan Stanley’s Jeffrey Adelson put the boot in.
In an intriguing twist, Adelson, who had upgraded the stock to an Equal-weight (i.e., Neutral) rating just three months ago, has reverted to an Underweight (i.e., Sell) rating. Furthermore, he has lowered his price target from $7 to $6.5, indicating a potential downside of 17.5% for the stock. (To watch Adelson’s track record, click here)
Outlining the pessimistic take, following the Q4 readout, the analyst believes the stock is “pricing in too much optimism on the path to 2026 profitability laid out by SOFI, all while staring in the face of a worsening top-line growth outlook for 2024.”
“Looking beyond 2024,” Adelson goes on to add, “we believe there is more downside risk than upside to the medium-term outlook, which implies a meaningful reacceleration in top-line growth to 25%+.”
In addition to the turn into profitability, Adelson puts the post-earnings rally down to the overall revenue guide implying around mid-teens growth and significantly exceeding the bears’ expectation of a “sharper slowdown” in 2024. However, Adelson thinks Lending revenues – the biggest part of the business – will likely “shrink more than consensus expects.”
SoFi called for Lending revenues to drop by 5-8% year-over-year. Adelson was expecting a 4% decline, and says consensus was “too optimistic” with its call for 10% growth.
The overall problem is that fundamental factors influencing Lending continue to head in the wrong direction. These include: “1) Slowing originations and loan growth, 2) Capital constraints still largely in place, 3) Reversals of previously recognized loan marks growing, 4) Credit losses quickly ramping towards SOFI’s life of loan target of nearly 5% in 1H24, and LendingClub also reporting another 150bp q/q and 360bp y/y increase in personal loan NCOs (to 6.6% vs SOFI’s ~4% in 4Q).”
So, that’s Morgan Stanley’s bearish take, what does the rest of the Street make of SoFi’s prospects? It’s a mixed bag. 3 other analysts join Adelson in the bear camp and with an additional 7 Holds and 4 Buys, the stock claims a Hold consensus rating. That said, the $9.13 average target factors in returns of ~16% on the one-year horizon. (See SoFi stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
