Shares of SoFi (NASDAQ:SOFI) stock are down by about 13% today following a downgrade and price target reduction from a top analyst.
This morning, Keefe, Bruyette & Woods analyst Mike Perito downgraded SOFI stock to “underperform” from “market perform” while lowering the price target to $6.50 from $7.50, reflecting a 13.3% reduction. The price target implies downside of about 22% from current levels.
Perito is ranked at 358 among 8,653 Wall Street analysts tracked by TipRanks. He carries a 64% success rate with an average one-year return of 15.2%.
First, Perito notes that SoFi has had outsized gains since it reported its third-quarter earnings, outpacing the KBW Nasdaq Financial Technology Index by a wide margin. SoFi’s outperformance has led Perito to be cautious on the company’s future performance.
SOFI Stock: Keefe, Bruyette & Woods Reduces Price Target to $6.50
Perito has also slightly lowered his 2024 revenue and EBITDA estimates. He now expects $2.299 billion in revenue and $493 million in EBITDA, which are 10% and 17% lower than the consensus Wall Street estimate. The analyst reduced his estimates due to his expectation for lower origination and technology revenue.
“SOFI’s shares remain heavily debated, and ultimately achieving (and sustaining) profitability in 4Q23/2024 could be possible; however, we believe there are more downside scenarios to this outcome than upside, which at a premium valuation shifts us to a more cautious stance,” said Perito.
Becoming profitable is a major goal for any company. For Q4 2023, analysts expect SoFi to report a GAAP EPS of 1 cent, which would be the company’s first profitable quarter since it became publicly traded. For 2024, analysts expect SoFi to report a GAAP EPS of 6 cents, which would mark the company’s first year of profitability.
Furthermore, the fall of interest rates could actually be detrimental for SoFi due to its fair value accounting, says Perito. That’s because SoFi sells the loans it originates, marking up the value of the loans to account for the expected future resale price as well as interest and fees. The risk here is that changing interest rates could affect the real value of these loans.
On the date of publication, Eddie Pan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
