SoFi Stock gets a downgrade. Why Wall Street is Divided.
SoFi Technologies fell more than 10% on Monday after the financial company took a downgrade as Wall Street remains uncertain about the stock.
Wedbush analysts downgraded the stock to Underperform from Neutral in a note on Monday, after cutting their rating to Neutral from Outperform earlier in May. They have a price target of $2.50, compared to SoFi’s (ticker: SOFI ) Friday close of $5.02.
They said SoFi could be “approaching a tipping point” for the fee income it recognizes from loan applications and sales, and warned that fee income could decline significantly. Wedbush analysts also said the company’s capital levels may be overstated using fair value accounting and that it may look to raise capital this year to support growth.
They noted that an equity raise was being considered, citing a risk factor that appeared in a recent company filing. The company said that if its current net losses continue for the foreseeable future and it is unable to achieve net income profitability as expected, “we may raise additional capital in the form of equity or debt,”[ads1]; adding that it may not be on favorable terms compared with to previous transactions.
The Wedbush team also said it expects regulators to increase scrutiny of capital ratios and stress testing following the failures of Silicon Valley Bank and First Republic Bank.
Advertisement – Scroll to continue
SoFi had received a bull on Friday when analysts at Truist Securities initiated coverage of the stock with a Buy rating and a price target of $8.
“We see SoFi as the future of American banking: digital, nimble and always on,” Truist analyst Andrew Jeffrey said in a note.
It highlights how divided Wall Street is when it comes to the stock. Of the analysts surveyed by FacSet, 53% have a Buy rating and 47% have a Hold rating. Wedbush’s Underperform rating was not included in the data.
SoFi stock fell 21% in just two days in early May following the company’s first quarter results. Investors appeared to take SoFi’s sharp increase in the number of personal loan commitments as a sign of future losses, JP Morgan
Advertisement – Scroll to continue
analyst Reggie Smith said Barron’s.
SoFi Technologies did not immediately respond to a request for comment Barron’s Monday.
Write to Callum Keown at callum.keown@barrons.com
