Shares of
Upstart
were sinking Wednesday after the consumer lending company posted a wider-than-expected loss and issued a dismal outlook.
Despite the stock’s steep decline, one analyst on Wall Street is sticking with his Buy recommendation for the shares.
Upstart (ticker: UPST), an artificial-intelligence lending platform, reported a third-quarter adjusted loss of 5 cents a share after the market close Tuesday, wider than the consensus estimate for a per-share loss of 2 cents. Revenue fell 14% from a year earlier to $135 million, below Wall Street estimates of $140 million.
The stock fell as much as 30% shortly after the market opened Wednesday, which would put it on pace for the largest percent decrease since August when it fell 34.24%, according to Dow Jones Market Data. At last check, the stock was down 27% to $21.54.
Upstart uses machine learning algorithms to assess borrowers’ credit risk for lenders instead of the traditional FICO credit scoring system. In a conference call, the company reiterated the negative impact of banks’ cautious approach toward lending in a higher-interest-rate environment. Upstart said lending partners originated 34% fewer loans In the third quarter compared with a year ago.
“People are being knocked out of the approval box and declined increasingly,” CEO David Girouard said on Tuesday’s earnings call. He added that the company would benefit from the Federal Reserve lowering interest rates, as that would “improve approvability.”
Upstart didn’t immediately respond to a request for comment on Wednesday.
For the fourth quarter, Upstart expects revenue of approximately $135 million, lower than the $157.6 million predicted by analysts.
Out of the 18 analysts tracking the stock, 10 have maintained a Sell rating since mid-September, according to FactSet, while seven say Hold. BTIG’s Lance Jessurun is the lone analyst to recommend buying the stock.
After Upstart’s results, Jessurun maintained his Buy rating but slashed his target price by half to $32. The next few quarters should show similar weakness, but a possible interest-rate cut by the Fed in the spring could help the company turn around, he wrote Tuesday.
“We believe that the macro environment should round the corner … and share price performance should likely follow,” Jessurun wrote.
Other analysts aren’t as optimistic. Wedbush’s David Chiaverini stuck with his Sell rating and $10 target on the stock Wednesday, calling out the “challenging consumer lending backdrop.”
J.P. Morgan
‘s Reginald Smith also maintained his Sell rating and lowered his target for price to $26 from $28 Wednesday. While he likes the potential of Upstart’s AI lending platform, he sees weaker trends in the market in the near term.
Write to Karishma Vanjani at [email protected].
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