Jefferies Starts SoFi (SOFI) at Buy and Sees Over 60% Upside

Jefferies analyst John Hecht started the research coverage of SoFi Technologies (NASDAQ: SOFI) with a Buy rating and a $25.00 per share price target.

This is the fourth 'Buy' rating SOFI has received since it went public via a SPAC in June. It also has 1 Neutral rating (Credit Suisse).

The analyst believes SoFi’s “Flywheel” is likely to continue driving significant user growth, product adoption, and margin expansion.

“SoFi's Flywheel is designed to cross-sell the company's broad suite of products, with the ultimate goal of expanding the number of members who using consequently adopt higher-cost products, margins appreciate as well. Member growth is key to SoFi's strategy as a direct driver of revenue expansion – we currently expect ~46% average avg. revenue growth through '25. We believe this highly synergistic business model, which encourages significant cross-sell activity, will propel user growth, margins, and profitability over the long term,” the analyst said in a client note.

Similarly, the “Galileo” product is seen as a key differentiator and growth driver. Moreover, the company has also made progress towards obtaining a bank charter, which should ultimately support attractive long-term growth.

“Ultimately, SoFi may be less dependent on warehouse lines and securitizations, enhancing NIM & portfolio returns as a result. While the impacts of the charter are not factored into LT guidance or our estimates (given the uncertainty around timing/likelihood), its adoption would serve as a significant enhancement of SoFi's origination capabilities and funding profile. Notably, the addition of a bank charter adds ~30% in incremental adjusted EBITDA relative to our current base case estimates,” Hecht added.

The SOTP method yields a $25.00 per share price target.

“This method is conservative and point to the potential upside to our PT if certain milestones are achieved (including bank charter adoption and margin/account appreciation ahead of ests) – largely attributable to the highly synergistic Flywheel,” the analyst concluded.

Shares of SoFi are up 4.5% in pre-open Wednesday.

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