SoFi (NASDAQ: SOFI) shares plunged after the top analyst from Keefe, Bruyette & Woods downgraded the stock and reduced the price target, causing a significant impact on its market value.
SoFi’s stock value took a significant hit on Tuesday, dropping by 13% after respected analyst Mike Perito of Keefe, Bruyette & Woods downgraded the company stock and reduced its price target.
In a noteworthy development, Perito downgraded SOFI stock from “market perform” to “underperform” while concurrently lowering the price target from $7.50 to $6.50. This adjustment represents a 13.3% reduction and indicates a potential downside of around 22% from current levels.
Perito holds the 358th position out of 8,653 Wall Street analysts monitored by TipRanks. He boasts a success rate of 64% and achieves an average one-year return of 15.2%.
Perito cautioned about SoFi’s prospects as it significantly outperformed the KBW Nasdaq Financial Technology Index after its third-quarter earnings report.
Perito has also made downward adjustments to his 2024 revenue and EBITDA estimates for SoFi (NASDAQ: SOFI), signaling a more cautious outlook. The revised projections anticipate $2.299 billion in revenue and $493 million in EBITDA, representing a 10% and 17% reduction, respectively, compared to the consensus Wall Street estimate.
Perito noted,
“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.”
Achieving profitability is a significant milestone for any company, and analysts anticipate that SoFi will make strides in this direction. Projections for Q4 2023 suggest SoFi may report a GAAP EPS of 1 cent, potentially marking the company’s inaugural profitable quarter since going public. Looking ahead to 2024, analysts envision a GAAP EPS of 6 cents, signaling SoFi’s potential for a profitable year.
However, the decline in interest rates poses a unique challenge for SoFi, according to Perito. This is due to SoFi’s fair value accounting system, which involves selling originated loans with marked-up values based on expected future resale prices, interest, and fees, which may be adversely affected by fluctuating interest rates. This risk hinges on the potential impact of changing interest rates on the actual value of these loans.
Kevin Putnam is a financial journalist and editor based in New York. He specializes in editing news and analysis related to U.S. stock market.
