On Friday, Piper Sandler adjusted its stance on Upstart Holdings Inc (NASDAQ:UPST), upgrading the stock from Neutral to Overweight and significantly increasing the price target to $85.00, up from the previous $31.00. This revision comes as Upstart, a company specializing in lending technology, reaps the benefits of a more favorable rate environment and enhancements to its lending model.
The company's third-quarter performance was notably influenced by these improvements, alongside the added advantage of lower interest rates. Upstart's recent partnership with Blue Owl stands out as a strategic move, committing to the purchase of $2 billion in loans over the next 18 months. This partnership contributes to over half of Upstart's loan funding being secured through committed capital, which is seen as a stabilizing factor for the company's business model.
According to the firm, management at Upstart has indicated that there are more similar partnership discussions underway. These potential partnerships are expected to strengthen Upstart's lending capabilities even further. The company's positive trajectory in the third quarter is a testament to the successful integration of these strategic initiatives.
Piper Sandler's optimistic outlook is also based on the anticipation that the recent interest rate cuts will be positively reflected in Upstart's business model moving forward. The analyst's comments highlight the synergy of a conducive rate environment, improved lending dynamics, and model upgrades as key drivers for the raised price target and upgraded stock rating.
In other recent news, Upstart has made several significant strides in expanding its reach and diversifying its offerings. The company has introduced its T-Prime lending program, targeting high-credit-score borrowers, with fourteen lenders already onboard. Upstart has also secured a programmatic purchase commitment of up to $2 billion from Blue Owl Capital Inc., and announced a $300 million offering of Convertible Senior Notes due in 2029, targeted at qualified institutional buyers.
The AI lending marketplace has seen analyst attention, with Mizuho (NYSE:MFG) Securities reaffirming an Outperform rating on Upstart's shares, citing potential growth drivers. However, BofA Securities maintained an Underperform rating but increased its price target for Upstart.
In terms of financial performance, Upstart's loan volume and revenue growth are accelerating. The company anticipates total revenues of approximately $150 million for Q3 2024 and projects positive adjusted EBITDA in Q4 2024. Other notable developments include a strategic partnership with AMOCO Federal Credit Union to offer AI-driven loans.
Despite a 9% year-over-year decline in fee revenue to $131 million, Upstart saw a 31% increase in loan transaction volume. These recent developments underscore Upstart's ongoing efforts to refine its AI-driven lending platform and its strategic move towards a more sustainable and diversified funding structure.
InvestingPro Insights
Upstart Holdings Inc's recent performance aligns with Piper Sandler's optimistic outlook. InvestingPro data reveals that the company has experienced a significant return over the last week, with a 14.42% price increase. This short-term gain is part of a larger trend, as Upstart has seen a remarkable 159.45% price return over the past year.
The company's stock is currently trading near its 52-week high, with the price at 96.64% of its peak. This momentum is reflected in InvestingPro Tips, which highlight Upstart's strong returns over various timeframes, including the last month, three months, and six months.
Despite these positive price movements, it's important to note that Upstart is not currently profitable, with a negative P/E ratio of -24.61. This aligns with the InvestingPro Tip suggesting that analysts do not anticipate the company to be profitable this year. However, Upstart's liquid assets exceed its short-term obligations, indicating a solid financial position to support its growth initiatives.
For investors seeking a more comprehensive analysis, InvestingPro offers 12 additional tips for Upstart Holdings Inc, providing deeper insights into the company's financial health and market position.
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