BTIG upgrades this AI lender after private credit sell-off makes shares look cheap

Shares of Upstart may have fallen too far amid the broader downturn in private credit markets, according to BTIG. The financial firm upgraded the artificial intelligence lending marketplace to buy from neutral. Analyst Vincent Caintic’s $43 price target implies a 63% upside ahead for shares of Upstart. Caintic pointed to Upstart’s plans last week to submit an application to establish an insured national bank as a postive. He added that the market didn’t react to the announcement, which he found surprising because a bank charter would address what he considers to be a key downside risk of Upstart’s private credit exposure. Caintic wrote that Upstart’s intention to hold a national bank charter could provide downside protection in draconian scenarios where liquidity dries up for the company’s current funding partners. “While there’s no guarantee that Upstart will successfully become a bank, we think UPST’s current share price is both 1) not pricing any potential upside from becoming a bank, and 2) pricing in significant liquidity risk of Upstart losing funding sources,” he wrote. The move could also significantly increase cost savings, through the elimination of fees currently being paid to partner banks and operational costs of having hundreds of licenses across different states, Caintic said. The analyst calculated that Upstart’s annual earnings per share could rise by 60% thanks to reduced transaction volume costs. A bank charter could also meaningfully reduce quantified capital and regulatory infrastructure costs. The analyst also believes that a national bank charter could help expand Upstart’s customer base. It would also put into place a consistent and unified regulatory framework nationally. “Even without the savings, we would upgrade UPST to Buy on the bank downside protection alone, especially with UPST shares trading cheaply on fears of private credit appetite collapsing,” Caintic added. Caught up in the overall sell-off sweeping the private credit market, shares of Upstart have plunged 40% this year. The stock is now down 46% over the past 12 months.