SoFi Technologies fell more than 6% ahead of the open Monday after the financial services company picked up a downgrade as Wall Street remains unsure about the stock.
Wedbush analysts downgraded the shares to Underperform from Neutral in a note Monday, having cut its rating to Neutral from Outperform earlier in May. They have a price target of $2.50, compared to SoFi
‘s (ticker: SOFI) Friday closing price of $5.02.
They said SoFi could be “nearing a tipping point” on the fee income it recognizes from loan applications and sales, warning the free income could decline significantly. Wedbush analysts also said the company’s capital levels may be overstated using fair value accounting and that it could look to raise capital this year to support growth.
They noted that an equity capital raise was being considered, citing a risk factor that appeared on a recent company filing. The company said that if its current net losses continue for the foreseeable future and it’s not able to hit net income profitability as expected “we may raise additional capital in the form of equity or debt,” adding that it may not be on favorable terms compared to previous transactions.
The Wedbush team also said they expect regulators to increase scrutiny on capital ratios and stress testing following the failures of Silicon Valley Bank and First Republic Bank.
SoFi had gained a bull Friday as analysts at Truist Securities initiated coverage of the stock with a Buy rating and a $8 price target.
“We see SoFi as the future of U.S. banking: digital, nimble and always on,” Truist analyst Andrew Jeffrey said in a note.
It highlights how split Wall Street is when it comes to the stock. Of the analysts surveyed by FacSet, 53% have a Buy rating and 47% have a Hold rating. Wedbush’s Underperform rating was not included in the data.
SoFi stock fell 21% in just two days at the start of May following the company’s first-quarter earnings. Investors appeared to take SoFi’s sharp rise in personal loan obligation numbers as a sign of future losses, J.P. Morgan analyst Reggie Smith told Barron’s.
SoFi Technologies did not immediately respond to a request for comment early Monday.
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