On Thursday, BTIG has adjusted its outlook on Affirm Holdings Inc. (NASDAQ:AFRM), raising the price target to $81 from the previous $68, while reiterating a Buy rating on the stock. Currently trading at $72 and showing remarkable momentum with a 132% gain over the past six months, Affirm has caught analysts' attention.
According to InvestingPro data, the company has demonstrated strong revenue growth of 46.5% despite current profitability challenges. The firm's analysis centers on Affirm's potential to enhance its profit margin and increase earnings per share (EPS) as it moves into 2025.
Affirm's diverse initiatives, including its expansion in the UK market, the integration with Apple (NASDAQ:AAPL) Pay Later, and the launch of the Affirm Card, are currently seen as likely unprofitable. However, BTIG points out that there has been less attention on the company's operating income margin.
With a gross profit margin of 42.27%, the firm notes that Affirm's profit margins already surpass those of American Express (NYSE:AXP) when compared on a like-for-like basis and believes there is potential for further expansion. This is expected as the company grows its Gross Merchandise Volume (GMV) through its traditional merchant discount rate and interest income revenues.
The analyst firm anticipates that as Affirm continues to demonstrate its GAAP profitability, the attractiveness of the stock will become more evident not only to tech and payments investors but also to a broader financial audience. BTIG suggests that an EPS of over $3 is attainable in the near term for Affirm and that this performance warrants a higher valuation multiple compared to traditional consumer finance companies, such as credit card issuers.
The update from BTIG reflects confidence in Affirm's business model and its ability to execute on profitability strategies. As the company progresses, investors will likely monitor Affirm's ability to maintain and grow its profit margins while expanding its EPS as projected by the analyst firm.
In other recent news, Affirm Holdings Inc. has reported a significant transaction with PGIM Fixed Income, involving a $500 million private purchase of loans.
This move bolsters the existing relationship between the two firms and leverages Affirm's rapid growth. This development comes alongside Affirm's strong first-quarter performance, with revenue growth of 46.55% and a current ratio of 17.58. However, analysts do not expect profitability this year.
Affirm's expansion efforts have also been noteworthy, with new partnerships that have expanded its merchant network by 20%. The firm is preparing for a UK market launch and has introduced a "Flexible Credential" payment feature in partnership with Visa (NYSE:V).
BofA Securities and Mizuho (NYSE:MFG) Securities have both raised their price targets for Affirm, maintaining a Buy and Outperform rating respectively. These upgrades follow Affirm's impressive gross merchandise value growth and strong Residual Loan to Cost performance.
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