Jefferies downgrades this 'buy now, pay later' stock, sees more than 20% downside

Published Fri, Feb 11 20226:19 AM EST

Jefferies on Friday downgraded shares of payments company Affirm and sees significant downside ahead for a company whose shares cascaded lower Thursday after its quarterly earnings were mistakenly shared early on social media. Affirm is one of several hot "buy now, pay later" companies, which offer short-term and low-interest loans to users when they buy consumer goods online. The company has a partnership with Amazon. Jefferies moved its rating on Affirm to underperform from hold. The firm also cut its price target on the stock to $45 from $55. The new projection is 23% lower than Affirm's closing price Thursday. "Despite a F2Q22 top-line beat and higher FY22 guidance, investors appear disappointed," Jefferies' John Hecht said. The call comes after Affirm reported quarterly earnings ahead of schedule. The company released the results after a since-deleted tweet was sent from Affirm's official Twitter account Thursday afternoon detailing financial performance in the fiscal second quarter. The guidance in the report implies lower margins and slowing growth in the current quarter, Affirm noted. Shares tumbled 21.4% lower Thursday and were down another 9% in premarket trading Friday. During the pandemic, borrower defaults — when a borrower fails to make a payment on time — reached decades-long lows as government aid and stimulus programs appeared to help keep payments on track. As credit utilization returns closer to pre-pandemic ways, that could pressure Affirm's profit. "Credit normalization is likely to lead to increased losses/provisions, while rising interest rates will hurt AFRM's GOS (gain on sale) margins, as well as increase funding costs. While this has been expected and is within guidance, these factors likely represent a LT headwind, rather than a transitional headwind, on the margins of this platform," Hecht said. The analyst also sees few new catalysts that could push the stock higher. "Given our expectations for [continued] good revenue growth along with declining margins, we find it difficult to determine what will be attributed to incremental, positive trends (in part given rising rates and losses) and thus find it hard to identify an emerging catalyst,'" Hecht said. Shares of Affirm have plunged more than 41% this year. —CNBC's Michael Bloom contributed reporting.

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