Jefferies initiates coverage of SoFi shares with a bullish rating
SoFi Technologies Inc.'s strong product portfolio could help lift its shares roughly 50% higher, according to one analyst's model--and that's on top of a 10% rally Wednesday.
Shares of SoFi (SOFI) surged Wednesday after Jefferies analyst John Hecht chimed in with an upbeat view of the digital-finance stock, setting a buy rating and $25 target price. That price target might end up being conservative, Hecht said, since his model accounts for each of SoFi's products individually and doesn't factor in the powerful "flywheel" effect he thinks the company can leverage through its ample opportunity to cross-sell products.
"Rather than directly pursuing member growth with large dollar loans, SoFi eases consumers into the ecosystem by giving them free access to high-frequency products and lower costs," Hecht wrote. "Following that, SoFi's simple [user interface/user experience] draws customers toward ancillary products."
The ability to sell existing customers on new products bodes well for SoFi's margins, according to Hecht, who predicts that SoFi will reach profitability on a GAAP basis within the next three years. He expects that the company will be able to lower costs through the benefits of scale, allowing it to pass on savings to customers in order to generate more engagement with the platform.
"This cycle self-reinforces and drives more growth," he wrote.
Hecht is also optimistic about the company's banking ambitions after earlier this year it announced plans to acquire a small community bank to help speed up its process of getting a banking charter.
"This enhances the value proposition for SoFi members while driving down costs compared to the current process of financing loan offerings in a nonbank," he wrote. "Ultimately, this would allow it to conduct normal banking operations without the legacy bricks-and-mortar infrastructure, in turn creating a cheaper base to make loans to its customers."
Shares of SoFi have fallen 20.8% over the past three months as the S&P 500 has risen 3.5%.