Investing.com - Keefe, Bruyette & Woods (KBW) has downgraded its rating on SoFi Technologies Inc (NASDAQ: SOFI ), saying the fintech company's long-term earnings outlook appears challenging and does not justify current valuations.
KBW downgraded SoFi from "Market Perform" to "Underperform" but raised the price target for the company slightly from $7 to $8.
The brokerage noted that SoFi shares are up 57% in 2024 and have gained 100% since September due to investor optimism towards fintech companies as well as lower interest rates in the coming years.
However, KBW also noted that the stock's valuation is stretched even if the company can achieve its "ambitious" long-term goals. This left some pessimistic scenarios in play.
KBW pointed out that SoFi's 2026 earnings forecast - of $0.55 to $0.80 per share - would require "significant" revenue growth and a marked improvement in margins, which the brokerage said would be difficult to achieve.
Even if SoFi's most ambitious targets were met, the valuation appeared "stretched" and the risk/reward ratio was largely skewed to the downside.
"Even if we assume SOFI can generate ROTCE in excess of 20% (which is unlikely to be achieved until 2028 at the earliest), we forecast downside risk to shareholders of 46% from current levels in our base case scenario assuming a 10x earnings multiple," KBW analysts said in a note.
SoFi shares surged in late 2024 as investors bet that a Donald Trump presidency would bring less restrictive regulations to the fintech sector.
SoFi is a direct bank that offers personal financial services while providing technology services to other financial institutions.
