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The Ratings Game: SoFi sees ‘light at the end of the tunnel’ on student loans, analyst says in upgrade

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SoFi Technologies Inc.’s stock powered more than 5% higher in Wednesday trading as Bank of America turned bullish on the neobanking company’s shares.

Bank of America’s Mihir Bhatia upgraded the stock to buy from neutral, writing that the name holds “catalyst potential” given opportunities ahead in student lending as well as the potential yields of recent marketing moves.

SoFi
SOFI,
+5.65%

was dealing with an “overhang” on student loans as President Joe Biden continued to push out the timing of a loan-payment moratorium, but he announced in late August that the government would forgive $10,000 in loans for borrowers making under $125,000 a year and end the pause on payments at the start of the new year.

See more: Biden canceling $10,000 of student loans, $20,000 for Pell grant recipients

That move suggests a “light at the end of the tunnel” for SoFi, according to Bhatia.

“Student loan refinance is SOFI’s most profitable product and the loan forbearance has been overhang for SOFI both fundamentally (as demand was stymied for a high incremental margin product), as well as for sentiment as investors remained unsure when demand would resume,” he wrote.

Increased clarity on the government’s plans “should set the stage for student loan refi originations to resume in late 4Q22 as borrowers begin to receive payment notices from loan servicers,” Bhatia said.

Read: Block faces ‘potentially growing headwinds’ to Square and Afterpay businesses, says analyst

Additionally, he thinks SoFi could realize benefits from its marketing around the National Football League, as the company’s name sits atop the Los Angeles stadium where the Rams and Chargers play their games. SoFi is also working on a brand campaign with Justin Herbert, quarterback for the Chargers, he said.

“Our analysis indicates interest in the SOFI brand inflects higher on Sundays, particularly when L.A. teams play home games,” Bhatia wrote.

Shares of SoFi have gained 4% over the past three months, though they’ve fallen 61% over a 12-month span. The S&P 500
SPX,
+0.34%

is up 4% over the past three months but off 12% over 12 months.

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