On Monday, Citi resumed coverage of SoFi Technologies, Inc. (NASDAQ:SOFI), a personal finance company, assigning a Buy rating and setting a price target of $11.00. The coverage follows a hiatus during which the firm had suspended its rating on the stock.
The analyst from Citi highlighted that the renewed rating of Buy with a High Risk designation is based on an updated financial model that now includes the latest annual report data and recent capital markets transactions. These transactions include the exchange of $600 million in convertible senior notes due in 2026 for approximately 73 million shares, an action that is expected to improve SoFi's total risk-based capital ratio and be accretive to the company's GAAP income for the first quarter of 2024.
Additionally, SoFi issued 1.25% convertible senior notes due in 2029 and engaged in capped call transactions. The company anticipates an annual savings of $40-$60 million in interest expense and dividend payments by using the proceeds from the notes to pay down higher-cost debt instruments.
The analyst's fundamental view on SoFi remains bullish, particularly as the company's strategy for business diversification becomes clearer. The company's consistent ability to attract deposits and the market's focus on forward profitability were also noted as positive indicators for SoFi's outlook.
The detailed changes in the financial model, which incorporate the impact of these capital market activities, were not specified but were mentioned to be included in the analyst's coverage.
InvestingPro Insights
In line with the optimistic outlook from Citi, InvestingPro data also presents a compelling picture for SoFi Technologies, Inc. (NASDAQ:SOFI). The company's revenue growth is particularly notable, with a significant increase of 36.11% over the last twelve months as of Q4 2023, indicating a strong market demand for SoFi's services. This is complemented by a robust gross profit margin of 81.62%, showcasing the company's ability to maintain profitability on its core offerings.
From an investment standpoint, SoFi's market capitalization stands at $7.77 billion, with a price to book ratio of 1.48, suggesting a reasonable valuation in relation to the company's net assets. However, it's important to note that the P/E ratio is currently negative, reflecting the company's recent lack of profitability.
Two InvestingPro Tips provide additional context: analysts predict SoFi will become profitable this year, which could be a pivotal turning point for investor sentiment. Meanwhile, the company's stock is known for its high price volatility, which may appeal to certain investors looking for short-term trading opportunities but could also indicate a higher risk profile for long-term investors.
For readers interested in a deeper dive into SoFi's investment potential, InvestingPro offers additional tips. By using the coupon code PRONEWS24, you can get an extra 10% off a yearly or biyearly Pro and Pro+ subscription, unlocking even more insights. With 5 more tips available on InvestingPro, investors can gain a comprehensive understanding of SoFi's financial health and market position.
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