Mizuho analysts are expressing increased optimism for SoFi Technologies following its recent earnings report, driven by the perceived potential in student loan refinancing.
Despite the challenging market conditions, Mizuho analysts have maintained their Buy rating on SoFi shares (ticker: SOFI) and raised their price target from $9 to $15 while also revising their estimates upwards. However, these positive actions did not result in an immediate stock price increase, as SoFi shares declined 2.6% to $10.08, in line with the broader Nasdaq Composite which was down 2.1%.
SoFi originally emerged as a lender with a primary focus on refinancing student debt. The company’s shares have experienced a rally this year, mainly due to the announcement that federal student loan repayments will resume in the near future, putting an end to the moratorium that was implemented during the onset of the Covid-19 pandemic. SoFi reported a 1% decline in its student loan volume in the second quarter, amounting to $395.37 million, which they attributed to the persisting uncertainty surrounding federal student loan payments.
The potential market size for this sector remains a topic of ongoing debate within the fintech industry. In this regard, Mizuho has provided its input by projecting a comparatively larger market opportunity for SoFi.
According to the analysts, SoFi has the potential to tap into a total addressable market of $350 billion to $400 billion for student loan refinancing. This represents almost a quarter of the combined outstanding federal and nonfederal student loans. Mizuho believes that this substantial opportunity has not been fully factored into current consensus estimates.
SoFi’s Student Loan Refinancing Projection
SoFi, a leading student loan refinancing platform, has been the topic of much speculation among analysts. While Mizuho provided a higher projection, even SoFi itself has provided a conservative forecast. Chief Executive Officer Anthony Noto stated in an interview on Monday that the company expects a student loan refinancing opportunity of around $200 billion. However, J.P. Morgan analysts believe this opportunity will be closer to $90 billion.
According to J.P. Morgan analysts, refinancing with a private lender like SoFi would be beneficial only for a fraction of borrowers who have high income, credit scores, and annual percentage rates. The majority of borrowers, on the other hand, are advised to hold onto their existing federal loans or explore income-based repayment plans.
Analysts have varying opinions on SoFi, with 35% rating it as a Buy, 45% rating it as Neutral, and 20% rating it as Sell, according to FactSet.
While the stock has experienced significant growth this year, not everyone is confident in its ability to sustain such rapid gains. Keefe Bruyette analysts recently downgraded SoFi shares to Underperform from Market Perform while raising their price target to $7.50 from $5.50. They believe that the stock’s valuation has exceeded its fundamental earnings outlook.
The bear-bull debate over SoFi continues, leaving investors and analysts eager to see how the company will perform in the near future.