SoFi Technologies (NASDAQ:SOFI) was cut to Neutral from Outperform, with its price target lowered to $5 from $8 per share by Wedbush analysts in a note Tuesday.
The analysts explained that they are downgrading the stock as there "could be downside risk to its gain on sale margins and fair value marks of its loan portfolio."
"There were minimal actual loan sales during 1Q, but we fear that when SoFi does start selling loans again that there could be a material negative impact on the fair value of the loan portfolio," wrote the analysts.
They added that SoFi marks its loans with a baked-in gain on sale margin assumption, regardless of whether the loans are actually sold in the quarter.
"We believe that SOFI not selling loans in 1Q could imply that gain on sale margins aren't trending at similar elevated levels to those generated last year or that the market for loans may have weakened," said the analysts.
"We estimate that the company may be marking their loans at a ~104 cents on the dollar based on management's comments that its most recent loan sales for personal loans in 4Q and student loans in 3Q were completed at 104 cents, but we fear that if SoFi were to execute a loan sale today, we believe the sale execution level could be lower than previously achieved and could lead to a material reversal of gain on sale income, a potential decline in asset value, and a decline in tangible book value."