Analyst upgrades SoFi Technologies, warns of potential boom in student loan refinancing – SoFi Technologies (NASDAQ:SOFI)

This year has been brutal for SoFi Technologies Inc. SOFI and other lenders, as investors grow increasingly concerned about the negative impact rising interest rates will have on lending, margins and revenue growth. However, with SoFi shares down more than 62% year-to-date, at least one analyst said Wednesday that the pessimism surrounding rate hikes was now fully priced into SoFi shares.

The analyst: Bank of America Analyst Mihir Bhatia upgraded SoFi from Neutral to Buy and raised its price target from $8 to $9.

Related Link: Lending Stocks Continue to Rally for Student Loan Relief Plan: SoFi CEO Highlights Opportunity Ahead

The thesis: In the upgrade note, Bhatia said SoFi’s risk-reward profile has become attractive given its focus on high credit quality customers. Additionally, Bhatia said the Biden administration’s student debt relief plan removed a major surplus for SoFi. Student loan refinancing is SoFi’s most profitable business, and Bhatia said the student loan repayment moratorium will finally expire on January 1, 2023.

“This should set the stage for student loan applications to pick up at the end of 4Q22 as borrowers start receiving payment notices from loan services,” Bhatia said.

Related Link: Biden Outlines Student Loan Relief Plan: Do You Qualify For Forgiveness?

SoFi isn’t the only lender that has struggled in 2022 due to rising interest rates. Shares of several other top lenders have been crushed so far this year:

  • Upstart Holdings Inc. UPST is down 83.2%.
  • UWM Holdings Corp. UWMC is down 38.8%.
  • Rocket Companies Inc. RKT is down 49%.
  • Affirm Holdings Inc. AFRM is down 75.3%.
  • LendingClub Corp CL is down 50.1%.

Rising interest rates can be good news for lenders by increasing their net interest margins, but when interest rates rise too quickly, it weighs on loan demand. If consumers can no longer afford mortgages, personal loans or student loans, income growth may begin to slow. In the last quarter, SoFi maintained revenue growth of 52.7%, but also generated a net loss of $95.8 million.

Benzinga’s opinion: Lenders have been hit hard in 2022 as interest rates rise and recession fears loom. However, the moratorium on student loan repayments has been a somewhat artificial headwind for SoFi, which could serve as a unique bullish catalyst once lifted and lead SoFi to outperform many of its lending peers.

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