Sofi's Stock Drew a Rare Bullish Call

SoFi Technologies Inc. has attracted a relatively modest following of bullish sentiment among Wall Street analysts, but that positive sentiment has recently expanded.

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Kyle Peterson, an analyst at Needham, has initiated coverage of the financial-technology firm with a buy rating and a price target of $10 on Wednesday. He believes that SoFi offers an appealing combination of growth prospects and profitability. Currently, according to FactSet, SoFi's stock (SOFI, 3.81%) is covered by eighteen analysts, with four holding buy-equivalent ratings, ten with neutral ratings, and four with sell ratings.

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Peterson views SoFi as a promising long-term player in the digital lending and neobank sector. He attributes this to the company's focus on prime and super-prime consumers, as well as its possession of a full banking license. He contends that this licensing advantage translates into superior unit economics compared to competitors that target lower-income borrowers or lack banking licenses.

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In his report, Peterson lauds SoFi's high-growth lending division, which encompasses credit cards, personal loans, mortgages, and student-loan refinancing, among other offerings. He highlights the potential stability in SoFi's financials derived from its banking charter, which should facilitate efficient and stable funding. This could set SoFi apart from other digital lending firms reliant on more volatile financing sources.

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According to Peterson, SoFi's lending arm has been instrumental in achieving GAAP profitability. He foresees a continued profitability trend, which he believes will bolster tangible book value and support long-term share price growth.

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While SoFi's lending activities receive significant attention, Peterson also identifies promising opportunities in the company's technology products. For instance, SoFi's Galileo platform serves other fintech firms while enhancing vertical integration within SoFi's own operations. Peterson highlights various services offered by SoFi, including lending underwriting powered by artificial intelligence and card issuance.

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Peterson considers these technology-driven businesses as SoFi's prime assets due to their higher growth rates (20% or more), lower capital intensity, and scalability for expansion into new products or markets.

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His $10 price target is based on a sum-of-the-parts valuation, attributing $8 per share to the lending business and $2 per share to SoFi's technology and other fee-based income lines, which encompass interchange revenue.

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SoFi's shares have seen a 1% increase in premarket trading on Wednesday. While the stock has experienced a 28% decline year-to-date, it has shown a 19% gain over the past twelve months.

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