June 4, 2023

Brighton Journal

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SoFi Stock gets a discount. Why is Wall Street divided?

SoFi Technologies fell more than 9.1% on Monday after the financial services company downgraded its rating as Wall Street remains unsure about the stock.

Wedbush analysts downgraded the stock to underperform from neutral in a note on Monday, after downgrading it to neutral from Outperform earlier in May. They have a price target of $2.50, compared to SoFi (ticker: SOFI) closing price of $5.02 on Friday.

They said SoFi may be “approaching a tipping point” in terms of the fee revenue it recognizes from loan applications and sales, warning that free income could drop significantly. Wedbush analysts also said that the company’s capital levels may have been overstated using fair value accounting and that it may look to raise capital this year to support growth.

They indicated that an increase in equity capital is being considered, referring to the risk factor that appeared in the company’s latest file. The company said that if its current net losses continue in the foreseeable future and it cannot reach net income gains as expected, “we may raise additional capital in the form of equity or debt,” adding that it may not be on favorable terms compared to previous transactions.

The Wedbush team also said they expect regulators to step up scrutiny of capital ratios and stress-test after the failures of Silicon Valley and First Republic Bank.

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SoFi gained on Friday as analysts at Truist Securities began covering the stock with a buy rating and a $8 price target.

“We see SoFi as the future of American banking: digital, smart and always on,” Truist analyst Andrew Jeffery said in a note.

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It highlights just how divided Wall Street is when it comes to the stock. Among analysts surveyed by FacSet, 53% have a buy rating and 47% have a hold rating. Low performance Wedbush rating was not included in the data.

SoFi stock fell 21% in just two days at the start of May after the company’s first-quarter earnings. Investors appear to regard SoFi’s sharp rise in personal loan commitment numbers as a sign of future losses, JP Morgan

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said analyst Reggie Smith Barron.

SoFi Technologies did not immediately respond to a request for comment Barron Monday.

Write to Callum Keown at [email protected]