Affirm Shares Climb Following Wells Fargo’s Upgrade to “Overweight” Rating

Shares of Affirm experienced an increase in premarket US trading on Friday following an upgraded outlook from analysts at Wells Fargo. They raised their rating on the stock from “Equal Weight” to “Overweight,” noting that Affirm has demonstrated its potential to capture a significant share of the ecommerce checkout market for the foreseeable future.

Affirm, which specializes in buy-now-pay-later (BNPL) services, currently has a market capitalization of approximately $13.07 billion. Although the stock has seen a decrease of nearly 10% so far this year after a strong performance in 2023, it has gained momentum recently, driven by expectations that the Federal Reserve may soon ease its monetary policy.

In August, the company reported quarterly results that exceeded expectations and projected profitability by the end of next year, ahead of Wall Street’s predictions. Following these developments, the Wells Fargo analysts highlighted that with profits on the horizon, Affirm’s valuation is becoming more appealing.

Founded in 2012 by Max Levchin, a co-founder of PayPal, Affirm competes with companies like Klarna and Block’s Afterpay in the BNPL sector, allowing consumers to pay for purchases in installments typically over three to twelve months. Affirm and similar companies generate revenue through interest payments and fees charged to retailers.

The company saw significant growth during the COVID-19 pandemic as consumers utilized stimulus funds and low interest rates to make larger purchases, such as electronics and clothing. However, this growth was challenged by the Federal Reserve’s aggressive interest rate hikes aimed at controlling inflation, which increased the cost of borrowing for Affirm’s installment loans.

Recently, the Federal Reserve has begun to lower borrowing costs, including a substantial reduction recently announced. Traders are anticipating further rate cuts through the remainder of this year and into 2025.

As interest rates decline, analysts at Wells Fargo pointed out that Affirm stands to benefit from lower funding costs, which would allow the company to target a broader range of credit consumers and accelerate growth.