Why SoFi shares are rising today

What happened

Shares of a digital bank and one-stop financial services company Sofi Technologies (SOFI 3.51%) traded around 3.3% higher today at 2:53 p.m. ET after receiving an upgrade from Wall Street.

So what

Bank of America Analyst Mihir Bhatia downgraded SoFi from a neutral to a buy rating and raised the share price target from $8 per share to $9. The stock is currently trading at just over $6 per share.

Bhatia currently sees an attractive risk-reward proposition and expects SoFi to benefit from the expiry of the student loan moratorium at the end of the year.

Payments on federal student loans have been suspended for more than two years now, which has significantly slowed student loan refinancing activity, once SoFi’s biggest lending product. Since that pause, SoFi’s student loan business has been operating largely at half capacity or less.

President Joe Biden has also granted forgiveness of some federal student loan debt, a plan that would largely forgive $10,000 for those earning up to $125,000 a year. It could also boost student loan refinancing activity at SoFi, as it gives federal borrowers clarity on forgiveness, which could allow them to move forward with refinancing if they had considered it.

Now what

SoFi is still suffering from high levels of equity-based competition and its financial services division is still losing a lot of money, but I largely agree with Bhatia’s buy recommendation here.

The other advantage of the bank is that it caters to a very affluent clientele with high FICO scores and strong annual revenues, which should make the business more resilient to any type of recession.

Bank of America is an advertising partner of The Ascent, a Motley Fool company. Bram Berkowitz has no position in the stocks mentioned. The Motley Fool has no position in the stocks mentioned. The Motley Fool has a disclosure policy.

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