SoFi Technologies’ recent decision to sell $750 million in convertible debt caught the attention of investors, especially coming on the heels of a robust Q4 earnings report. The market reaction was swift, with SoFi’s stock price plummeting by 15% in response to the announcement. However, in the weeks following this development, SoFi’s share price managed to stabilize, signaling a potential shift in investor sentiment.
Amidst this backdrop, Wall Street analyst Timothy Switzer of Keefe, Bruyette & Woods weighed in on SoFi’s prospects, expressing a more favorable view of the company’s stock. Switzer raised his price target on SoFi shares by 15% to $7.50 per share, reflecting a modest increase that aligns with the current market value. While this adjustment may seem incremental, Switzer’s upgrade from a “sell” to a “market perform” rating suggests a shift towards a more neutral stance, indicating that he no longer sees the stock as a compelling sell opportunity.
The rationale behind Switzer’s revised outlook stems from several factors. Firstly, SoFi’s stock had already experienced a significant decline of nearly 26% year-to-date prior to the announcement, which may have mitigated some of the downside risks associated with the shares. Additionally, while Switzer may retain concerns about the sustainability of SoFi’s earnings, he acknowledges that investors are no longer assigning a premium valuation based solely on high earnings expectations.
One key driver of optimism surrounding SoFi is the company’s intended use of the proceeds from the convertible debt offering. SoFi plans to deploy the funds to repurchase preferred stock carrying a high dividend yield. By replacing this costly debt with lower-interest debt, SoFi stands to substantially reduce its interest expenses, potentially bolstering its bottom line. This strategic move could position SoFi to achieve its first GAAP-profitable year in 2024, signaling a significant milestone for the company and potentially enhancing its attractiveness to investors.
Despite SoFi’s current valuation metrics, including a relatively high price-to-earnings ratio based on projected earnings, investors see considerable growth potential in the company. With projected earnings per share expected to reach $0.50 in 2026, SoFi could trade at a substantially lower forward price-to-earnings ratio, making it a more appealing investment opportunity over the long term.
However, before making any investment decisions, it’s crucial for investors to conduct thorough due diligence, considering factors such as the company’s fundamentals, competitive landscape, and broader market conditions. Seeking advice from financial professionals can also provide valuable insights to guide investment strategies and mitigate risks associated with investing in individual stocks like SoFi Technologies.