What happened
Shares of SoFi Technologies (SOFI 3.69%) were rising 12.1% on Monday as of 3 p.m. ET.
The fintech began as a student loan provider and has pivoted to become more of a full-service banking and brokerage super-app. It had been beaten down amid the past year's interest rate shock, along with severe worries over the value of its loans following the recent regional banking crisis.
However, one analyst believes those concerns are overblown, and that the company's investments in new growth areas will pay off with profitability by the end of this year.
So what
On Monday, Truist analyst Andrew Jeffrey maintained his buy rating on SoFi shares, while also raising his price target from $8 to $11. That compares will SoFi's roughly $9 share price today, which has doubled from the beginning of the year and at the depths of the regional banking crisis.
This could be merely a case of an analyst seeing a stock he likes that exceeds his former price target, and then re-rating higher. However, Jeffrey also elaborated on his rationale in his note, saying, "Although still controversial, we believe SoFi's efforts to educate investors about its strategy, liquidity, fair-value accounting, financial model and credit quality are paying dividends."
SoFi had been the target of short-sellers in recent months, as concerns grew about the liquidity and value of its loan book as interest rates have surged, along with the company's lack of profitability under generally accepted accounting principles (GAAP). SoFi didn't sell any of its large personal-loan book last quarter, even though it marks its loans as held-for-sale and typically sells some every quarter.
That may have spurred fears over SoFi's inability to generate liquidity through sales, or about the creditworthiness of those loans. Of note, amid the student loan moratorium, which has limited SoFi's core student loan refinancing product, the company has accelerated originations of high-rate unsecured personal loans. Those loans are high-rate and short duration, which are attractive qualities in a high-rate environment; however, they are also perceived as much riskier.
Jeffrey thinks these concerns are overblown. While the company didn't sell any whole loans, it did execute a $440 million asset-backed securitization containing consumer loans, showing there was some loan demand even amid recession fears.
Moreover, the company has really impressed in attracting deposits, which were up $2.7 billion last quarter alone, already reaching over $10 billion just one year after SoFi got its banking license. Importantly, 97% of its deposits are insured, meaning there is very little risk of the rapid deposit flight seen at more troubled regional banks.
Lastly, management pointed to the average 749 FICO score of its borrowers as very high, signifying a very creditworthy borrower base.
Now what
On top of all this, the recent debt-ceiling negotiation should enable a restart of student loan repayments, which could reignite SoFi's stagnant student loan originations. With investors looking more bullish now that the debt ceiling standoff is over and employment numbers continue to look strong, cyclical stocks such as fintechs and others are getting a rerating in the market.
Assuming that inflation can come down without significant job losses, SoFi and other fintechs could still move higher, even after their recent surge.
