Investing.com -- Shares of Affirm rose 3.5% in premarket trading on Friday after Morgan Stanley elevated the stock to its Top Pick, citing what it called an “overdone” private credit overhang and a strong path for catalysts.

In the note, analyst James Faucette said he sees a high likelihood of upward estimate revisions along with potential for Affirm to “sustain 30%+ GMV growth & AOI margins over the near to medium term.”

The bank argued that concerns around private credit are overstated, noting that the company’s asset-backed security spreads held at 80bps for two-year tranches, while three-year spreads “tightened to 95bps from 100bps.”

The analyst also pointed to a constructive funding backdrop. They said peers with “less consistent credit performance and capital markets execution have raised forward flow capital intra-quarter,” which reinforces their view that bearish private-credit fears “look overdone.”

Morgan Stanley highlighted Affirm’s May Investor Forum as a potentially significant catalyst, with expected updates on gross merchandise volume, margins and long-term earnings targets.

The bank believes the company could outline medium-term scenarios ranging from below 20% GMV growth to above 30%, and may raise its retained loan and transaction margin outlook to 3.5%-4.0%.

The bank also expects Affirm to introduce a fiscal 2028 GAAP EPS target of $2.50 to $3.00, which it described as “quite conservative.”

“AFRM offers what we view as one of the most attractive risk-reward setups in our coverage, with our $76 PT (~27% upside) implying a ~24x FY28 GAAP EPS multiple, supporting our Top Pick status,” concluded Faucette.