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SoFi stock rose as high as 14% Monday, after Morgan Stanley called it "fastest growing story in consumer finance".
SoFi was initiated by the bank with an "Overweight” rating. The target price for SoFi was $25, which represents 54% of potential upside.
These are the two catalysts Morgan Stanley believes will drive SoFi stock higher in the coming year.
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SoFi stock rose as high as 14% Monday after Morgan Stanley gave it bullish praises, calling it the "fastest growing story in consumer finance".
SoFi was initiated by the bank with an "Overweight” rating and a $25 price goal that represent 54% upside potential starting Friday's close.
According to SoFi, SoFi's strength comes from its beginnings as a consumer lender that primarily focused on student loans refinances at a lower rate.
Lending is the most difficult part of consumer finance because you have to be able to understand credit and provide excellent customer service. Morgan Stanley stated that the reward for loyalty is greater when you solve their cash flow problems and leave them with more money in your pocket.
SoFi can cross-sell financial services to consumers after granting a loan. This activity is now 24% of SoFi’s total products and should continue to drive growth. Morgan Stanley anticipates that SoFi will double its customer base, to 5.3million in the next two-years.
According to the bank, two catalysts will help in this growth.
First, SoFi's student loans refinance business will boom after the government ended its February deferment of student loan payments. This program enabled student loan borrowers to temporarily suspend their payments during the COVID-19 pandemic. It also removed the incentive to refinance to lower-rate private loans.
Morgan Stanley predicts that the government's deferred student loan program will expire in 2022, leading to a 70% increase of student loan originations and a return to pre-pandemic levels.
Second, SoFi's bank charter approval could increase total revenues by 10% in its first year purely based on its access to low interest rates that other banks enjoy. To improve profits, SoFi must lower its cost of capital. Morgan Stanley anticipates SoFi will be approved for its pending bank chart in the early 2022.
Morgan Stanley's SoFi stock bull case is at risk due to the fintech not being approved for its bank charter, sharp pullbacks in brokerage revenues, crypto volatility and fierce competition from legacy financial institutions and fintech startups.
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