Upstart Holdings Gains on Needham Upgrade, Citing Improved Funding and Financial Stability
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Citing a healthier financial situation and better financing visibility, Needham & Co. upgraded Upstart Holdings (UPST, Financials) to a "Buy," from "Hold." Post the verdict, the stock is down well, up 10% on last look in Friday's trading.
The upgrade shows positive changes in Upstart's balance sheet management and financing situation. Supported by lowering short-term interest rates, analyst Kyle Peterson underlined the company's relationships with dedicated capital purchasers and a stable financing market. These elements help to clarify the company's business strategy, says Needham.
The company also cited Upstart's recent refinancing of an out-of-the-money convertible bond, which has reduced its credit risk profile. Peterson pointed out that this action, along with a strong capital basis, will help the business be positioned for steady expansion.
Attributing the rise to good macroeconomic circumstances, a stable finance environment, and the launch of new products, Needham projects an over 25% revenue gain for fiscal year 2025. Although the company did not name any new product lines, Upstart has shown interest in broadening its artificial intelligence-driven loan solutions before.
Upstart revealed in the third quarter of 2024 a 20% year-over-year income rise to $162 million, above analysts' projections of $149 million. Originating 188,149 loans valued $1.6 billion, the business also achieved a 43% consecutive increase in loan volume.
Recent strategic actions by Upstart include refinancing a convertible bond outside of the money range, therefore lowering credit risk exposure. The firm also revealed a relationship with Blue Owl Capital, allowing it to buy up to $2 billion in consumer debts over the next 18 months, therefore strengthening its corporate model.
While Needham's update shows confidence in Upstart's future, J.P. Morgan recently cut the stock to "Underweight," citing valuation concerns while noting the company's AI-driven financing platform. The fintech industry has witnessed various analyst assessments.
This article first appeared on GuruFocus.