SoFi Stock Gains a Bull. Analyst Calls It ‘The Future of U.S. Banking.’

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SoFi Technologies

gained a cheerleader Friday, as analysts at Truist Securities initiated coverage of the financial-services firm with a Buy rating and $8 price target.

“We see SoFi as the future of U.S. banking: digital, nimble and always on,” wrote Truist analyst Andrew Jeffrey in a Friday report.

Nonetheless, SoFi stock dropped 2% to $5.04 in Friday trading. Over the last 12 months, the stock has lost 25%.

“We think long-term growth investors will embrace SoFi’s robust multiyear organic revenue, earnings before interest, taxes, depreciation, and amortization, free cash flow and free cash flow return on equity outlook,” Jeffrey wrote.

Looking at the larger picture, Jeffrey noted how the bank’s start as a lender focused on refinancing student debt—”like many FinTechs, relying on capital markets funding”—forced it to establish discipline in underwriting and risk management “to offer acceptable returns to lending partners.” SoFi’s acquisition of Technisys SA last year helped transform it into a full-service bank.

As a bank, SoFi has seen deposits rise sharply, clocking in at about $10 billion in its first quarter from about $1.2 billion a year earlier, he continued, “making it a beneficiary of Legacy bank deposit outflows,” he continued.

And indeed, the bank sector has dealt with significant volatility over the past few months, beginning with

SVB Financial
,
parent of Silicon Valley Bank, shuttering, continuing with

Credit Suisse

folding and agreeing to be snapped up by

UBS Group

(UBS), and culminating with

First Republic Bank

being sold to

JPMorgan Chase

(JPM). Regional banks have been on a roller coaster.

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Jeffrey outlined how SoFi brings in revenue through lending, technology, and financial services, calling lending “the key economic driver.”

And though he is bullish on the stock, others disagree. 

On May 1, before the market opened, the company posted a first-quarter loss that was narrower than expected, and SoFi raised guidance for 2023. Investors, however, seemed to take the stellar personal-loan-origination numbers as a warning of more losses going forward, sending the stock down 12% that day, according to Dow Jones Market Data.

Given recessionary concerns, there’s an expectation of eventual heightened losses across consumer credit, and investors seem to be taking the sharp rise in personal loans this quarter as a sign of future losses, J.P. Morgan analyst Reggie Smith told Barron’s at the time. In a May 1 note after SoFi’s report, he had a Neutral rating on the stock.

Of the analysts surveyed by FactSet in May, 47% rate SoFi stock at Hold, and 53% rate it at Buy.

Write to Emily Dattilo at [email protected]