After erasing a significant portion of its value over the past couple of months, shares of SoFi Technologies (NASDAQ:SOFI) got a big lift yesterday.
SoFi stock closed 13.7% higher on Wednesday after it announced that it had received the much-awaited regulatory approval from the OCC (Office of the Comptroller of the Currency) to become a national bank.
Why is this Important?
The approval of the bank charter is a “significant positive catalyst,” noted Dan Dolev of Mizuho Securities, who has a bullish outlook on SoFi stock. The move will reduce SoFi’s cost of capital, thus boosting its EBITDA and, in turn, earnings.
Dolev elaborated that SoFi uses its own capital and nearly $6 billion of warehouse capacity to fund its operations and growth of the lending segment. With the banking license, SoFi would be able to fund its loans through “SoFi Money deposits,” which would reduce capital costs.
During the Q3 conference call, SoFi’s management stated that the approval of the bank license provides a new source of funding and adds flexibility.
It’s worth noting that the approval came with certain conditions. OCC stated that as a bank, SoFi “will not engage in any crypto-asset activities or services.”
In response to this, Dolev stated that it will not impact SoFi’s product capabilities, and the issue is “fully solvable.”
Now What?
While the approval of the banking license is a positive development and will boost its financials, the extension of the student loan moratorium will likely remain a drag in the near term.
It’s worth noting that the resurgent virus led President Joe Biden’s administration to extend the student loan repayment period by 90 days.
The extension will likely hurt SoFi’s student loan refinance originations, and in turn, its top line. It’s worth noting that SoFi expects its Q4 revenues to either increase or decrease by 2% on a quarter-over-quarter basis. This compares unfavorably with the 17% sequential growth in its net revenues in Q3.
Wall Street’s Take
Given the near-term challenges, analysts are cautiously optimistic about SOFI. Its Moderate Buy consensus rating is based on 7 Buys and 3 Holds. Further, SoFi’s stock prediction on TipRanks shows significant upside potential. The average SoFi Technologies price target of $21.40 implies 56.1% upside potential to current levels.
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