Morgan Stanley Downgrades Upstart to Underweight, Price Target Cut by Nearly 80%

June 29, 2022 6:07 AM EDT
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Shares of Upstart (NASDAQ: UPST) are down over 9% in pre-open after Morgan Stanley analyst James Faucette downgraded to Underweight from Equal Weight on “intensity of cyclical headwinds.”

“Deteriorating relative underwriting performance and increasing required returns from institutional partners have shifted our view incrementally negative, and we see downside risk to estimates and valuation as the platform's cyclicality is tested,” Faucette told clients in a note.

The analyst also slashed the price target to $19.00 from $88.00 which pushes Upstart stock to “one of our least favorite risk/rewards within our SMID Fintech coverage.”

The key pillar of the downgrade move is that Faucette now sees Upstart as a cyclical platform rather than secular one. He also notes that tailwinds from 2021 are now becoming headwinds in 2022.

“We not only see downside to estimates behind economic tightening and increased costs of funding capital, but we also expect valuation to reflect a more cyclical growth trajectory. Consequently, our applied '23 EV/Sales multiple moves meaningfully lower to 1.25x, from prior 5x, representing a discount to high-growth fintech peers and informed by a growthadjusted P/E valuation approach vs. consumer finance incumbents,” Faucette added.

Upstart shares are down over 9% in pre-open Wednesday.

By Senad Karaahmetovic

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