SoFi stock rose 3.6% in premarket trading

SoFi stock rose 3.6% in premarket trading as Morgan Stanley initiated coverage of SoFi with an Overweight (i.e. Buy) rating and $25 price target.

The hardest part of consumer finance, according to Morgan Stanley’s Betsy Graseck, is lending. Outlining the bullish case for SoFi Technologies (SOFI), the company being a specialist in this specific segment is a major differentiator.

“SoFi is unique,” says Graseck. “It is a challenger consumer finance company that is leading with lending; specifically refinancing a high yield student loan into a lower rate.”

Lending is particularly difficult as it requires understanding of credit and demands a high level of customer service. But helping to solve a consumer’s cash flow issue and leaving them with more cash on tap, rewards with “higher customer loyalty.” This lending first model “generates customer leads for SoFi’s other services,” of which there are plenty.

Graseck uses the case of a post grad professional – HENRY – a “High Earner, Not Rich Yet customer,” who represents SOFI’s current core customer but is on “everyone’s target customer list.”

Getting HENRY a “higher cash flow post a student loan refi,” has impacted his life. Now HENRY is “receptive to cross-buy opportunities into SoFi’s growing Financial Services product set, particularly brokerage, card, and mortgage.”

This is not just fiction, the data backs up the story. SoFi’s customers have been “ramping their cross buy,” and now make up 24% of SoFi’s total products.

And after more than doubling the customer base over the past year from 1.2 million to 2.6 million, over the next two years, Graseck expects it to double again and reach 5.3 million. As the customer set doubles and SoFi “expands its product offerings,” the analyst believes Financial Services revenue growth will increase at a ~150% CAGR (compound annual growth rate) over the next 2 years.

Adding to the bull case, the next 6 months could see two meaningful catalysts drive “faster revenue growth and positive revisions to management guidance.”

First off, a surge in student loan volumes – a 70% increase, according to Graseck – should follow the expiration of the government’s student loan deferment program.

Secondly, there’s the prospective approval of SoFi’s bank charter. “This alone could boost total revenues by ~10% in its first full year given benefits to NIM (net interest margin),” the analyst noted.

Accordingly, Graseck initiated coverage of SoFi with an Overweight (i.e. Buy) rating and $25 price target. Investors could be pocketing gains of ~33%, should Graseck’s forecast hit the mark over the next 12 months.

The rest of the Street is almost just as effusive, projecting 12-month returns of ~31%, given the average price target clocks in at $24.58. Barring 1 Hold, all 5 other recent reviews are to Buy, culminating in the stock’s Strong Buy consensus rating.