This year has been brutal for SoFi Technologies Inc SOFI and other lenders, as investors grow increasingly concerned about the negative impact rising interest rates will have on lending, margins and revenue growth. However, with SoFi stock down more than 62% year-to-date, at least one analyst said Wednesday that pessimism surrounding rate hikes is now fully baked into SoFi stock.
The Analyst: Bank of America analyst Mihir Bhatia has upgraded SoFi from Neutral to Buy and raised his price target from $8 to $9.
The Thesis: In the upgrade note, Bhatia said SoFi's risk-reward profile has become attractive given its focus on high credit quality customers. In addition, Bhatia said the Biden Administration’s Student Debt Relief Plan has removed a major overhang for SoFi. Student loan refinancing is SoFi's most profitable business, and Bhatia said the moratorium on student loan payments will finally expire on Jan. 1, 2023.
"This should set the stage for student loan refi originations to resume in late 4Q22 as borrowers begin to receive payment notices from loan servicers," Bhatia said.
SoFi isn't the only lender that has struggled in 2022 thanks to rising interest rates. Shares of several other leading lenders have been crushed so far this year:
- Upstart Holdings Inc UPST is down 83.2%.
- UWM Holdings Corp UWMC is down 38.8%.
- Rocket Companies Inc RKT is down 49%.
- Affirm Holdings Inc AFRM is down 75.3%.
- LendingClub Corp LC is down 50.1%.
Rising interest rates can be good news for lenders by boosting their net interest margins, but when interest rates rise too rapidly, it weighs on loan demand. If consumers can no longer afford mortgage, personal or student loans, revenue growth can start to slow. In the most recent quarter, SoFi maintained 52.7% revenue growth, but also generated a $95.8 million net loss.
Benzinga's Take: Lenders have taken a hit across the board in 2022 as interest rates rise and recession fears loom. However, the moratorium on student loan payments has been a somewhat artificial headwind for SoFi, one that may serve as a unique bullish catalyst once it is lifted and lead SoFi to outperform many of its lending peers.
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