SoFi's stock set to extend surge - and this is what's driving recent optimism

MW SoFi's stock set to extend surge - and this is what's driving recent optimism

By Emily Bary

LendingClub's improving delinquency trends suggest SoFi could see similar dynamics, an analyst says

SoFi Technologies Inc. shares have been hot recently, rising 50% in the past three months. And they look poised to continue that rally on Friday.

The stock is up 3.8% in premarket trading Friday after advancing 4.9% in Thursday's action. Investors seem to be encouraged by upbeat results from fellow personal lender LendingClub Corp. (LC), which came out Wednesday afternoon.

LendingClub had seen net charge-offs rise for numerous quarters before a stretch of improvements seen over the course of this year, according to Mizuho's Dan Dolev. In the most recent quarter, the company saw a 5.4% net charge-off rate, down sequentially from 6.2%.

The company "is a key peer for SoFi (SOFI) for personal loan performance" since the two have "roughly similar" FICO credit-score profiles among their customer bases, Dolev wrote. Household income levels are similar as well.

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While he's mindful of the recent rally in SoFi shares, Dolev notes that LendingClub's stock has performed far better. "We believe that any signs of improving trends could drive re-rating," he wrote, meaning that investors could come to assign the stock a higher multiple.

Dolev himself has already done that. His new valuation multiple is 4x fiscal 2026 estimates for adjusted net revenue, whereas he was previously using a multiple of 3x fiscal 2025 estimates on the metric. That's led him to his new price target of $14, up from $12 before, and 28% above SoFi's Thursday close of $10.93.

SoFi is due to report results on Tuesday morning.

Besides LendingClub, there have been other recent upbeat indicators this earnings season, too, in Dolev's view.

"Assessing recent financial company results and management commentary points to a more balanced environment with large domestic banks all seeing continued stabilization in consumer credit," he wrote. Dolev specifically pointed to $Citigroup Inc(C-N)$. (C), for one, as that bank highlighted improving trends on delinquencies.

SoFi shares got a boost earlier in the month after the company struck an agreement with funds managed by Fortress Investment Group LLC that was seen as a reaffirmation of SoFi's underwriting model.

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-Emily Bary

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October 25, 2024 08:31 ET (12:31 GMT)

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