SoFi stock spiked more than 13% on Monday.
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SoFi Technologies shares soared Monday after receiving an enthusiastic Buy recommendation from a Morgan Stanley analyst who declared the fintech player to be “the fastest growth story in consumer finance.”
Originally focused primarily on student loan refinance, SoFi (ticker: SOFI) has expanded into a host of other financial services products. The company came public on June 1 via a merger with the special purpose acquisition company previously known as Social Capital Hedosophia Holdings V, created by the investor Chamath Palihapitiya. The stock has been gradually sinking lower since its IPO, falling 28% since June 1 to $16.21 last Friday.
Still, Morgan Stanley’s Betsy Graseck sees considerable upside, setting a price target of $25. She says the company has a unique story, “a challenger consumer finance company that is leading with lending,” specifically refinancing high-rate student loans to lower-cost loans.
“Lending is the toughest part of consumer finance as you need to understand credit and deliver excellent customer service,” she writes. “But the reward is higher customer loyalty when you help solve their cash flow problem and leave them with more money in their pocket. This lending-first model generates customer leads for SoFi’s other services,” including mortgages, brokerage services, and credit cards.
The analyst notes that SoFi’s target audience is the consumer segment sometimes known as HENRYs—an acronym for “high earner, not rich yet.” She notes that SoFi has made a difference in the lives of their HENRY customers, cutting their student loan payments, and says those customers are receptive to cross-sell opportunities. SoFi’s customer base can double over the next two years to 5.3 million from a recent 2.6 million, Graseck says, after more than doubling over the past year from 1.2 million.
The analyst expects financial services revenue growth for Sofi of 150% over the next two years as it doubles the customer base and expands its product set.
Graseck notes that the student loan refi market has “been on ice” since the government put all federal student loans in deferment in March 2020 at the beginning of the pandemic. But she notes that the deferment program ends on Jan. 31, 2022. Graseck expects student loan refinance volumes to soar in 2022 back to pre-Covid levels. She also sees a boost for the company coming from final approval of its pending application for a federal bank charter.
Graseck thinks SoFi can generate 47% compounded revenue growth through 2023 and that the market is pricing in growth more in the 20% range. She says that sets up the stock for a potential 50% gain.
SoFi shares on Monday have spiked 13.3%, to $18.37.
Write to Eric J. Savitz at [email protected]
