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SoFi soars after Morgan Stanley identifies 2 catalysts that could drive 54% rise in fintech company

  • SoFi stock rose 14% on Monday after Morgan Stanley called it “the fastest growing history in consumer credit.”
  • The bank launched SoFi with an “overweight” rating and set a price target of $ 25, representing 54% upside potential.
  • These are the two catalysts Morgan Stanley sees driving SoFi stocks up over the next year or so.
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SoFi stock climbed 14% on Monday after the company received bullish praise from Morgan Stanley, who called it “the fastest growing story in consumer credit.”

The bank launched SoFi with an “overweight” rating and a price target of $ 25 which represents upside potential of 54% from Friday’s close.

SoFi’s strength comes from its beginnings as a consumer lender primarily focused on refinancing student loans at a lower rate, according to the bank.

“Lending is the hardest part of consumer credit because you need to understand credit and provide great customer service. But the reward is greater loyalty when you help them solve their cash flow problem and leave more money in their pockets, ”Morgan Stanley said. .

After successfully granting a loan to a consumer, SoFi is able to sell him various financial services in the investment, banking and mortgage sectors. This activity now represents 24% of all SoFi products, and should lead to further growth. Morgan Stanley expects SoFi to double its customer base to 5.3 million over the next two years.

According to the bank, contributing to this growth will be two catalysts on the horizon.

First, SoFi’s student loan refinancing activity is expected to increase after the government ends its deferral of student loan payments in February. The program allowed student loan borrowers to withhold payments amid the COVID-19 pandemic, temporarily removing the incentive to refinance a lower-rate private loan.

The expiration of the government’s student loan deferral program is expected to result in a 70% increase in student loans in 2022 and return to pre-pandemic levels, according to Morgan Stanley.

Second, SoFi’s approval of its banking charter could increase total revenues by 10% in its first year just based on the benefits of having access to the same low interest rates as other banks. Reducing SoFi’s cost of capital is key to improving profits when lending money at a higher interest rate. Morgan Stanley expects SoFi to receive approval for its pending banking charter in early 2022.

Risks for Morgan Stanley’s bullish SoFi stock deal include fintech not receiving bank charter approval, a sharp drop in brokerage income due to crypto volatility, and intense competition from the market. share of traditional financial firms and fintech newbies.

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