Pagaya Tech shares surge on Blue Owl deal and Citi upgrade

Investing.com -- Shares of Pagaya Technologies (NASDAQ:PGY) climbed 11% following the announcement of a significant forward flow agreement with Blue Owl Managed Funds and an analyst upgrade from Citi. The technology company specializing in AI-driven financial solutions disclosed a new agreement to sell up to $2.4 billion in consumer loans via its network, alongside a positive shift in stock ratings by Citi analysts.

The forward flow agreement, set to span over 24 months, is part of Pagaya’s strategy to fund loan originations efficiently and complements its asset-backed securities (ABS) program, which has amassed over $26 billion since its inception. Pagaya CEO Gal Krubiner expressed confidence in the company’s robust funding program, highlighting its role in the expansion of the U.S. lending ecosystem. Ivan Zinn, Head of Alternative Credit at Blue Owl, also emphasized the impact of private credit in supporting consumer lending across the nation.

Citi analyst Peter Christiansen upgraded Pagaya Tech from Neutral to Buy, adjusting the price target to $14.50 from $13.00. Christiansen cited the stock’s underperformance due to markdowns on its 2023 vintage ABS pool but anticipated a positive shift in investor sentiment. He pointed to factors such as increased network volume, rising personal loan demand, operational efficiency improvements, and the potential for positive GAAP net income in the fiscal year 2025. Christiansen’s analysis suggests an attractive risk/reward setup, with the stock trading around 12x Citi’s fiscal year 2026 GAAP EPS estimates, which he considers favorable compared to the adjusted P/E of 5-6x.

"The stock has been held back owing to recent markdowns on its 2023 vintage ($275m ABS pool, marked at $200m as of 3Q’24). The original deal was motivated by bringing on a strategic network partner despite disadvantageous capital costs at the time. Conservatively, we expect a final ~$60m impairment in 4Q’24 and see investor sentiment turning positive ahead of (i) ramping network volume on new partner additions, (ii) improving personal loan demand/ramping point-of-sale activity, (iii) continued core opex efficiencies, and (iv) turning GAAP net income positive in FY’25 – stock is also ~12x our FY’26 GAAP EPS (5–6x adj P/E), indicating an attractive risk/reward setup," Christiansen commented.

The partnership with Blue Owl and the optimistic outlook from Citi analysts have provided a substantial boost to Pagaya’s stock, reflecting the market’s response to the company’s growth prospects and financial strategies.

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