Citi raises Pagaya Tech stock rating to Buy, target to $14.50

On Friday, Citi analyst Peter Christiansen upgraded Pagaya Technologies (NASDAQ:PGY) from Neutral to Buy, adjusting the price target to $14.50, up from the previous $13.00. The stock has shown strong momentum, gaining over 19% in the past week according to InvestingPro data, which also indicates the stock is currently trading below its Fair Value. The upgrade comes despite recent challenges faced by the company, including markdowns on its 2023 vintage, which consists of a $275 million asset-backed securities pool that was marked at $200 million as of the third quarter of 2024. While the company posted a negative EPS of -$2.63 in the last twelve months, InvestingPro analysis shows strong revenue growth of 23.4% and a healthy gross profit margin of 41%.

Christiansen noted that the original deal to bring on a strategic network partner was struck despite less favorable capital costs at the time. Looking ahead, Citi anticipates a final impairment of approximately $60 million in the fourth quarter of 2024. However, the analyst expects investor sentiment to improve due to several key factors: the ramping up of network volume following new partner additions, an increase in personal loan demand and point-of-sale activity, continued operational expense efficiencies, and the expectation of Pagaya turning GAAP net income positive in the fiscal year 2025.

The stock’s current valuation is approximately 12 times Citi’s projected GAAP earnings per share for the fiscal year 2026, which translates to an adjusted price-to-earnings ratio of 5 to 6 times. This valuation suggests an attractive risk/reward setup for investors, according to the analyst. InvestingPro subscribers can access additional insights, including 6 key ProTips and a comprehensive analysis of Pagaya’s financial health, which currently rates as "GOOD" with a score of 2.6 out of 5.

Additionally, Citi has announced that it will be hosting Pagaya management for investor meetings in New York City on February 26th. This event will provide an opportunity for investors to engage directly with the company’s leadership and gain further insights into Pagaya’s business strategies and financial outlook.

In other recent news, Pagaya Technologies reported a strong financial performance in their 3Q 2024 earnings call, with CEO Gal Krubiner announcing an annual revenue rate nearing $1 billion and a robust outlook for the coming year. The company’s adjusted EBITDA stood at $220 million, with a projected total revenue between $1.01 billion and $1.025 billion, and adjusted EBITDA between $195 million and $205 million. Pagaya aims to reach GAAP profitability by 2025, backed by a positive total cash flow.

In terms of corporate changes, shareholders approved significant amendments to the company’s Articles of Association, which include the phased declassification of the board of directors and adjustments to executive officer employment terms. These changes aim to enhance governance and align with shareholder interests.

UBS recently resumed coverage on Pagaya, issuing a Neutral rating while highlighting the company’s potential for revenue growth. However, UBS expressed caution due to uncertainties surrounding credit losses from risk retention assets and is seeking greater clarity on Pagaya’s credit impairments.

Pagaya also recently appointed Cory Vieira as Chief Accounting Officer. Vieira, with significant experience from roles at American Express (NYSE:AXP) and GE Capital, joins Pagaya as part of ongoing efforts to strengthen the company’s leadership team.

These are the recent developments in Pagaya Technologies, a company that continues to grow and adapt in the financial services sector.

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