SoFi Technologies Inc. has come a long way since its inception as a student loan platform, and this expansion into new areas of business has paid off for the company, even in the midst of a loan moratorium. to students.
Shares of SoFi SOFI,
rose 25% in Wednesday morning trading and are on track for their biggest single-day percentage gain since Jan. 7, 2021 after the company showed investors the benefits of its diversification strategy despite a weaker landscape for some of its business sectors.
Read: ‘Banking charter couldn’t have come at a better time,’ says SoFi CEO
“With the student loan moratorium still in effect and the struggling housing market, SOFI’s personal loan business has been the lending segment’s crutch,” Mizuho analyst Dan Dolev wrote.
He noted that the personal loan growth rate of 91% year-over-year was admittedly lower than the 151% rate that SoFi sported in the first quarter, but nevertheless, the company recorded sequential growth greater than 20. % on the metric for the second straight quarter.
MoffettNathanson analyst Eugene Simuni also pointed to the returns of diversification.
“Despite the poor performance of the Student Loan activity (creations
were down 54% year-on-year and down 60% sequentially), SoFi far exceeded overall revenue and earnings expectations as its other business segments (particularly the personal lending franchise) continued to grow rapidly,” he wrote in a note titled, “No Student Loans, No Problems.”
Wedbush analyst David Chiaverini applauded SoFi’s deposit momentum, as the company saw more than $100 million in weekly deposit inflows throughout the quarter and ended the period with more than $2.7 billion in total deposits.
This trend allowed SoFi to “reduce its reliance on higher cost wholesale borrowing,” he wrote, while maintaining an outperform rating and $8 target price on the stock.
John Hecht of Jefferies was also optimistic about the number of filings. “Additional deposit financing benefited NIM [net interest margin] & provided safety given macro uncertainty and rising rates,” he wrote, while maintaining his buy rating and $10 target.
That’s not to say analysts haven’t ended up with a few questions from the report. On the one hand, Dolev pointed out that the company only raised its full-year forecast for adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) by $4 million, despite beating the measure of $10 million last quarter. Was it a case of conservatism?
“Anyway, the challenge in 2H remains that for the back half, SOFI should hit $39M in 3Q and 4Q,” he wrote. “Investors should remember that Charter Banking should generate much better second half profitability due to higher NIM/longer holding periods.”
He prices the stock as a buy and has raised his price target by a dollar to $8.
Keefe, Bruyette, and Woods analyst Michael Perito said the latest changes to SoFi’s full-year guidance appear to primarily reflect second-quarter performance rather than new expectations for the rest of the year, and he said that he always adopted a more cautious attitude. position.
“Our outlook continues to be a bit conservative relative to the consensus, largely around our assumption that leverage/earnings scale in the financial services and technology segment may take a bit longer. time to develop,” he wrote. “Although we note that SOFI’s momentum in the bank is likely to be sustainable in the near term.”
Perito has a market performance rating and a price target of $7 on SoFi stock.
See Also: SoFi Gets Banking Charter Approval – ‘A Big Step Forward’
And Simuni noted that the fate of student loan relief still hangs in the balance, even though SoFi has been able to manage strong overall performance by leveraging other areas of the business.
“[T]there is no doubt that the uncertainty surrounding the federal government’s actions on student loan relief remains a very significant risk factor for SoFi,” he wrote, although he believes the risk that the federal government taking more permanent action to reduce student debt is less than might be “generally perceived”.
“In the most likely scenario, the loan forgiveness program would focus on helping low-income borrowers (for example, those earning less than $150,000),” Simuni said, but SoFi is reaching out. to high-income customers with a weighted average. income of $170,000.
He said the company was also expanding its student loan business beyond refinancing, with in-school loans.
“We will closely monitor the resolution of the student loan controversy over the next six months and look to ensure that this resolution serves as a positive catalyst for action,” Simuni wrote, while maintaining an outperform rating and a target price of $10 on stocks. .