Investing.com– Keefe, Bruyette & Woods (KBW) lowered its rating on SoFi Technologies Inc. (NASDAQ: ), stating that the fintech company’s long-term earnings outlook is difficult and does not justify current valuations.
KBW downgraded SoFi to Underperform from Market Perform, but raised the company’s price target slightly to $8 from $7.
The brokerage noted that SoFi shares are up 57% in 2024 and are up 100% since September on investor optimism about fintech companies as well as lower interest rates in the coming years.
But KBW also noted that the stock’s valuation has become overstretched, even if the company is able to achieve its “ambitious” long-term goals. This keeps some bearish scenarios in play.
KBW noted that SoFi’s 2026 earnings guidance — of $0.55 to $0.80 per share — calls for “significant” revenue growth and substantial margin improvement, which the brokerage said will be difficult to achieve.
SoFi’s valuation also appeared “overextended” even if its most ambitious targets were met, and that risk-reward was heavily skewed to the downside.
“Even assuming SOFI can generate >20% ROTCE (likely unattainable until 2028 at the earliest), we project a 46% downside for shareholders from current levels in our base case assuming a 10x earnings multiple,” said analysts KBW- and in the note.
SoFi shares rose in late 2024 as investors bet that Donald Trump’s presidency would lead to less restrictive regulations for the fintech sector.
SoFi operates as a direct bank and provides personal finance services, and also offers technology services to other financial institutions.
