Why This Analyst Remains Bullish On Upstart Holdings, While Others Cut Their Ratings

Upstart Holdings Inc UPST reported better-than-expected first-quarter results on Monday after the bell. However, shares of the AI consumer lending company tumbled more than 40% as management slashed the 2022 revenue forecast to $1.25 billion.

Piper Sandler On Upstart Holdings: Analyst Arvind Ramnani downgraded the rating for Upstart Holdings from Overweight to Neutral, while lowering the price target from $230 to $44.

The company reduced its full-year targets due to “macro uncertainties and the potential of recession,” Ramnani said in the downgrade note. He added that Upstart Holdings faces a slew of headwinds, including rising loan prices, higher risk exposure due to a larger loan balance, weakness in the asset-backed security market and margin pressure.

Stephens On Upstart Holdings: Analyst Vincent Caintic downgraded the rating for Upstart Holdings from Equal-Weight to Underweight, while reducing the price target from $124 to $28.

“What pushed us to downgrade UPST, despite seeing shares already trading down 44% after-market, is that Upstart is originating loans on its balance sheet that it couldn't pass to its funding partners. This breaks the thesis for us of a marketplace lender, which is supposed to originate on behalf of funding partners,” Caintic wrote in his downgrade note.

Morgan Stanley On Upstart Holdings: Although analyst James Faucette maintained an Equal-Weight rating and a price target of $88, he indicated that both were under review.

“Rising costs of capital emerged in UPST's 2Q22 outlook, dragging on growth expectations,” Faucette wrote in a note to clients.

“UPST's increased usage of their balance sheet for funding, expected margin contraction, and normalizing credit performance may lead to valuation pressure,” he added.

JMP Securities On Upstart Holdings: Analyst Andrew Boone maintained a Market Outperform rating and a price target of $70.

“While we acknowledge the risk around credit conditions worsening, further rate increases, and Upstart now holding more loans on its balance sheet, we believe these factors are fully incorporated into our model (we lowered 2022 revenue by 11%), and with valuation reset (shares are down 46% in after-hours trading) estimates now look conservative to us and we believe numbers can begin to move higher from here,” Boone said in the note.

The analyst stated Upstart Holdings is currently in “investment mode” and has multiple product launches. He expects the company to achieve “significant margin expansion from the 15% expected in 2022.”

UPST Price Action: Shares of Upstart Holdings had down 60.77% to $30.26 at the time of publication Tuesday morning.