The Ratings Game: SoFi’s stock has fallen far enough, a former bear says

Shares of SoFi Technologies Inc. inched higher in Wednesday’s after-hours action after a Keefe, Bruyette & Woods analyst abandoned his bearish stance on the financial-technology stock.

KBW’s Michael Perito still has some concerns about SoFi’s stock
but he thinks it now bakes in a balanced risk-reward profile following a 32% decline since the end of July. He upgraded the stock to market perform from underperform after Wednesday’s market close.

It wasn’t too long ago that Perito established his prior underperform stance. Back on July 31, he cautioned that SoFi’s valuation had “overshot the fundamental earnings outlook,” while also flagging some worries about capital consumption and the impact of some accounting preferences.

“While some of these areas of caution remain outstanding, cash downstreamed to the bank sub in 2Q23 should keep the tier 1 leverage ratio well above the 11% target even with continued balance-sheet growth, while strong personal-loan originations and stable-ish credit will likely limit the significance of any [fair-value] mark changes” in the third quarter, he wrote Wednesday.

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SoFi is due to report third-quarter results before the start of trading Oct. 30, and Perito expects that the company will show strong originations of personal loans but limited loan sales.

“Possible areas of upside (or downside) could be [student-loan refinancing] origination levels, technology segment revenues and credit, although based on bank earnings thus far we think credit might show continued normalization, but likely no broad-based deterioration,” he continued.

Perito kept his $7.50 price target on SoFi shares, which were up 0.5% in after-hours trading Wednesday. The stock closed the regular session at $7.77.

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