The new week will begin with a bang for SoFi (SOFI). Before today’s (Monday, January 29) trading action kicks off, the neo bank will announce its 4Q23 results and outlook for Q1 and beyond.
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If J.P. Morgan’s Reginald Smith’s analysis is anything to go by, it might be best for investors to stay in bed. Ahead of the print, the analyst has made some model revisions, and not the kind investors would like. “We are placing SoFi on Negative Catalyst Watch as we see risk to ‘24 estimates and guidance based on comments made at recent investor conferences, which point to a strategic shift away from balance sheet/loan growth, the key profit driver over the past two years,” Smith explained.
Representing what Smith calls a “significant and perplexing shift in strategy,” at investor conferences last month, management indicated there will be a dramatic slowdown in loan growth this year. Under SoFi’s fair value accounting methods, personal loan origination and loan growth are extremely accretive, leaving Smith perplexed as to why the company would willingly slow down its business, particularly given its substantial balance sheet capacity (as emphasized on the last earnings call, with over $27 billion in total loan capacity and a continuously increasing equity base).
Therefore, to account for slower loan growth, elevated credit losses, and diminished gain-on-sale margins, albeit somewhat offset by faster Tech Platform growth and cost-cutting measures, Smith has reduced his 2024 estimates. The 2024 EBITDA forecast is lowered from $626 million to $516 million, compared to the Street at $602 million.
Like the fintech group in general, SOFI stock is already under pressure this year (down by 23%), and despite liking the company’s long-term prospects, Smith sees further hard times ahead over the short term. “We continue to view SoFi as a long-term winner in the neo/digital bank space, but see pressure on SoFi shares near-term as we think investors will focus on soft ‘24 guidance and deteriorating credit trends, rather than 4Q upside and GAAP profitability,” the analyst summed up.
Smith’s take, however, does get a bit confusing when it comes down to the raw details. While the analyst remains on the sidelines with a Neutral rating, his price target remains at $10, suggesting the shares will post growth of 31% in the year ahead. (To watch Smith’s track record, click here)
6 other analysts join Smith on the sidelines and with an additional 5 Buys, and 3 Sells, the stock claims a Hold consensus rating. The average target stands at $9.33, making room for one-year returns of 22.5%. (See SoFi stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
