SoFi Technologies
fell more than 8.5% Monday after the financial services company picked up a downgrade as Wall Street remains unsure about the stock.
Wedbush analysts downgraded the shares to Underperform from Neutral in a note Monday, having cut its rating to Neutral from Outperform earlier in May. They have a price target of $2.50, compared to
SoFi
‘s (ticker: SOFI) Friday closing price of $5.02.
They said SoFi could be “nearing a tipping point” on the fee income it recognizes from loan applications and sales, warning the fee income could decline significantly. Wedbush analysts also said the company’s capital levels may be overstated using fair value accounting and that it could look to raise capital this year to support growth.
They noted that an equity capital raise was being considered, citing a risk factor that appeared on a recent company filing. The company said that if its current net losses continue for the foreseeable future and it’s not able to hit net income profitability as expected “we may raise additional capital in the form of equity or debt,” adding that it may not be on favorable terms compared to previous transactions.
A SoFi spokeswoman told Barron’s the disclosure regarding a possible capital raise had previously been provided and was consistent with prior quarters. It was amended in a recent filing to include a new target for GAAP profitability, she added.
The company does not intend to have net losses for the foreseeable future, but if it does end up with such losses despite the target, it may need to raise equity or debt capital, she said.
SoFi’s loans are fair value marked every month using current company-specific as well as macro factors, and reflect what an expected sale price would be at that point in time, they added, noting that there was a natural provision to mark down personal loans at 10 days, 30 days, 60 days and 90 days past their due date.
The Wedbush team also said they expect regulators to increase scrutiny on capital ratios and stress testing following the failures of Silicon Valley Bank and First Republic Bank.
SoFi had gained a bull Friday as analysts at
Truist
Securities initiated coverage of the stock with a Buy rating and a $8 price target.
“We see SoFi as the future of U.S. banking: digital, nimble and always on,” Truist analyst Andrew Jeffrey said in a note.
It highlights how split Wall Street is when it comes to the stock. Of the analysts surveyed by FacSet, 53% have a Buy rating and 47% have a Hold rating. Wedbush’s Underperform rating was not included in the data.
SoFi stock fell 21% in just two days at the start of May following the company’s first-quarter earnings. Investors appeared to take SoFi’s sharp rise in personal loan obligation numbers as a sign of future losses,
J.P. Morgan
analyst Reggie Smith told Barron’s.
SoFi Technologies didn’t immediately respond to a request for comment from Barron’s Monday.
Write to Callum Keown at [email protected]
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