Affirm upgraded as MS sees recent selloff as entry point

Investing.com -- Affirm Holdings shares offer an attractive entry point after a sharp recent selloff, with growth and credit concerns likely to prove short-lived, says Morgan Stanley upgrading stock to Overweight. Shares are up 2.6% in premarket trading.

Affirm’s shares have fallen more than 20% over the past month, underperforming payments and consumer finance peers, which are down about 8% on a median basis. The price target is trimmed to $76 from $83 due to multiple compression across peers, now valuing the stock at 23 times projected 2027 earnings.



The weakness has been driven by concerns over slowing growth indicated by third-party data and fears of a weakening consumer. According to Morgan Stanley both concerns appear overstated.

Affirm can still deliver a low- to mid-single-digit beat versus consensus expectations of about 31% year-on-year growth, says MS citing internal tracking of web traffic and app usage data.

That supports management’s view that one third-party data provider has shown tracking errors during the quarter.

Analyst says there are no signs of deterioration among Affirm’s borrowers. Credit performance data remains stable, and upcoming tax refunds could support consumer spending.

There are expectations that U.S. tax refunds will total about $100bn more than last year. Any consumer weakness, if it emerges, is expected to show up first in gross merchandise volume rather than credit losses.

The upgrade also reflects confidence in Affirm’s longer-term positioning. The analyst expects buy now, pay later to continue gaining share within e-commerce, with Affirm a key beneficiary.

The company’s merchant-funded 0% APR promotions are seen as a differentiator, while lower interest rates should improve unit economics by reducing funding costs on new loans while yields on the existing fixed-rate book remain elevated.

Partnerships with FIS and Fiserv are highlighted as potential upside not reflected in current estimates, with the analyst suggesting these could eventually exceed the current run rate of the Affirm Card.

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