SoFi Technologies
stock has suffered a steep drop this month. But the arguments for the selloff are wrong, according to Mizuho.
Shares of SoFi (ticker:
SOFI
) have dived 23% since the company reported first-quarter earnings on May 1. The day after the report, Wedbush downgraded the stock to Neutral from Outperform, citing meager loan sales. Wedbush analyst David Chiaverini lowered his rating on SoFi stock again on Monday to the equivalent of Sell, writing that he is concerned the market for loans has weakened. But Mizuho analyst Dan Dolev says there are reasons to stick with the finance company.
While SoFi does issue student, home, and personal loans to consumers, a key part of its business is securitizing and selling those loans to investors.
SoFi sold $78 million in the home loans segment in the first quarter, but no sales were conducted within the personal loan and student loan refinancing segments, suggesting softening demand from investors. In the previous quarter, the company did about $200 million worth of whole loan sales across segments.
The notable slowdown in loan sales during the quarter has investors worried that SoFi would need to mark down the value of its loans, which could prevent it from achieving profitability this year and possibly lead to a capital raise.
The decision to sell or hold the loans, CEO Anthony Noto said after the earnings report, is based on the company’s need for liquidity and ability to maximize returns. And SoFi has a sound liquid position, according to Noto, who said the company has “maximum optionality” with loans, given deposits of $10 billion at the end of March and other sources of funding.
SoFi’s Chief Financial Officer Christopher Lapointe said during the earnings conference call earlier this month that he’s confident that Sofi would be able to settle loans where they’re currently marked.
Mizuho’s Dan Dolev, who has stuck with his Buy rating on SoFi stock since late 2021, wrote Monday that the decision to hold off on selling loans is reasonable. Based on his calculations, he estimates that “SoFi is able to earn roughly 6.4% annualized yield on holding its personal loans, which is more attractive than selling them at ~5%,” he wrote.
“Bears are mathematically and intellectually off; buy on weakness,” Dolev wrote.
SoFi also said in its latest earnings report that if it isn’t able to hit net income profitability in 2023 as expected, “we may raise additional capital in the form of equity or debt.” Wedbush sees that as another reason to sell the stock. Raising additional capital could further hamper the stock’s valuation, and SoFi would likely get less cash from issuing new shares, as its market capitalization has fallen to $4.49 billion from above $6 billion in April.
But Dolev says SoFi’s disclosure on a possible capital raise isn’t new. “We believe SOFI included this portion to emphasize its focus on achieving GAAP profitability by the fourth quarter,” he wrote.
SoFi previously told Barron’s that the disclosure was consistent with prior quarters.
Analysts remain divided on the stock. A little over half the analysts are bullish on SoFi stock, 41% rate it as Hold, and 6% side with Wedbush analysts, recommending investors Sell the stock.
Write to Karishma Vanjani at [email protected].
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