What happened
Shares of the artificial intelligence lender Upstart Holdings (UPST 0.14%) traded more than 16% lower as of 11:14 a.m. ET today after it received yet another downgrade from Wall Street.
So what
Wedbush analyst David Chiaverini maintained his underperform rating on Upstart but lowered his price target from $20 to $15 per share. The stock currently trades around $43 per share.
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The lower price target comes just a week after Chiaverini lowered his price target on Upstart from $35 to $20. In that report, Chiaverini cited the fact that Upstart's recent securitization trusts, which are analyzed and graded by the Kroll Bond Rating Agency (KBRA), had delinquency and loss trends that continue to deteriorate worse than the KBRA's base case scenarios.
NASDAQ: UPST
Key Data Points
In his report today, Chiaverini cites his lowered price target based on the fact that in a new asset-backed securitization sponsored by Upstart, the KBRA has raised its loss expectations.
Upstart's whole business proposition is that its algorithms can determine the credit quality of a borrower better than traditional credit underwriting scoring methods such as Fair Isaac's FICO scoring. So if credit quality on loans underwritten by Upstart continues to struggle, that's very bad for the company.
Now what
Upstart's stock got hammered after the company's first-quarter earnings report, largely because the fintech was holding loans on its balance sheet that it was unable to off-load to investors.
Investors are not going to be any more willing to take loans if loss rates continue to climb, and Upstart needs investors to fund and purchase its loans. Due to all of these reasons, I continue to advise against purchasing Upstart stock right now.
