Why Morgan Stanley Is 'Incrementally Negative' On Upstart

Credit performance and interest rates, both tailwinds for Upstart Holdings Inc. UPST in 2021, have transformed into headwinds in 2022.

The Upstart Analyst: Morgan Stanley analyst James Faucette downgraded his rating for Upstart from Equal-Weight Underweight, while reducing the price target from $88 to $19.

The Upstart Thesis: Around 75% of the company’s platform volumes are derived from the institutional funding network. Rapid interest rate hikes and normalizing credit performance “have contributed to increased required returns from institutional investors, leading to higher APRs on UPST's platform — impairing borrower demand,” Faucette said.

“We expect these trends to continue in the medium-term, where as the market digests a rapid pace of interest rate hikes and incrementally challenging economic conditions, we think risks to estimates are skewed to the downside,” he added.

Faucette reduced the earnings estimates for the second, third and fourth quarters from 49 cents per share to 31 cents per share, from 52 cents per share to 36 cents per share and from 57 cents per share to 44 cents per share, respectively.

UPST Price Action: Upstart shares declined by 10.40% to $32.12 at the time of publication Wednesday.

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