Investing.com– Keefe, Bruyette & Woods (KBW) downgraded its rating on SoFi Technologies Inc. (NASDAQ:SOFI), stating that the fintech firm’s long-term earnings outlook appeared difficult and did not justify current valuations.
KBW downgraded SoFi to Underperform from Market Perform, but slightly raised its target price on the firm to $8 from $7.
The brokerage noted that SoFi shares rose 57% in 2024, and were up 100% since September on investor optimism over fintech firms, as well as lower interest rates in the coming years.
But KBW also noted that the stock’s valuation had become overstretched, even if the company is able to achieve its “ambitious” long-term targets. This keept some bearish scenarios in play.
KBW noted that SoFi’s 2026 earnings guidance- of $0.55 to $0.80 per share- required “significant” revenue growth and a substantial improvement in margins, which the brokerage said will be difficult to achieve.
SoFi’s valuation also appeared “overstretched” even if its most ambitious targets were hit, and that risk-reward was largely skewed towards the downside.
“Even if we assume that SOFI can generate a >20% ROTCE (likely unachievable until 2028 at the earliest), we project 46% downside to shareholders from current levels in our base case 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 will entail less restrictive regulations for the fintech sector.
SoFi operates as a direct bank and provides personal finance services, while also offering technology services to other financial institutions.