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SoFi Technologies Underweight Rating by Morgan Stanley
Morgan Stanley Analyst Downgrades SoFi Technologies
According to Morgan Stanley analyst Jeffrey Adelson, SoFi Technologies should be sold as it is behaving more like a traditional bank. Adelson downgraded the financial stock to underweight and raised his price target by 50 cents to $7. However, this raised price target suggests that the company's shares could potentially drop by 23.9% in the next year from its previous closing price.
Evaluation of SoFi Technologies
Adelson explains that SoFi Technologies was previously valued based on its strong growth, which exceeded most banks and consumer lenders. However, as the company now resembles a traditional bank, he believes it should be valued accordingly. While the stock has experienced significant growth this year, Adelson points out that the expectation of a 30% return on average tangible common equity seems overly optimistic compared to his estimated 15% return by the end of 2026.
Risks and Potential Upside
Adelson identifies a skewed risk-reward balance for SoFi Technologies, with a potential 70% downside to the bear outlook and a 30% upside on the bull case. He also highlights that net charge-offs, net interest margin, and fee income could pose pressures for the company this year. Furthermore, Adelson believes that the restart of student loan payments may have a smaller impact than anticipated, with the total addressable market estimated to be between $70 billion and $110 billion compared to the company's forecast of around $200 billion.
Future Outlook and Potential Boosts
Although Adelson's volume forecasts for SoFi Technologies are below Wall Street consensus, he acknowledges that the stock could benefit from factors such as an increase in mortgages, a rebound in sales, technological wins, or a sharp drop in interest rates. These events could provide a boost to the company's performance.
Implications for New Business
The recent underweight rating given to SoFi Technologies by Morgan Stanley analyst Jeffrey Adelson raises important considerations for new businesses operating in the financial sector. This downgrade suggests that SoFi Technologies, which had previously been valued for its impressive growth, is now being viewed more closely in line with traditional banks.
This development highlights the need for new businesses to carefully evaluate their positioning and business model as they strive for growth and success. It serves as a reminder that maintaining a strong differentiating factor is crucial in an industry where similarities to established players can negatively impact valuation and growth prospects.
Furthermore, the concerns raised by Adelson about SoFi Technologies' performance and challenges, such as net charge-offs and fee income, underscore the importance of risk management and anticipating potential obstacles. Startups in the financial sector must be mindful of these factors and implement strategies to mitigate risks and maximize potential returns.
On a positive note, Adelson does acknowledge that certain market events could provide a boost to the company's performance. This highlights the need for new businesses to stay agile and adaptable, identifying opportunities for growth and seizing them when they arise. Whether it be capturing increased mortgages, capitalizing on technological wins, or benefiting from favorable interest rate changes, being responsive to market shifts can be a key driver of success.
Overall, the SoFi Technologies rating downgrade serves as a valuable lesson for new businesses in the financial sector. By carefully considering their positioning, managing risks, and seizing growth opportunities, they can better navigate the challenges and opportunities of the industry for long-term success.
Article First Published at: https://www.cnbc.com/2023/07/13/morgan-stanley-downgrades-sofi-says-stock-should-be-valued-like-a-bank.html
