Shares of Affirm Holdings Inc. rose 3.5% in premarket trading on Friday after Morgan Stanley moved the stock to its Top Pick list, citing what the bank described as an "overdone" private credit overhang and a favorable trajectory for upcoming catalysts.
In a research note, analyst James Faucette said he sees a strong probability of upward estimate revisions for the company and highlighted the potential for Affirm to "sustain 30%+ GMV growth & AOI margins over the near to medium term."
Morgan Stanley challenged the extent of the market’s private credit concerns. The note pointed to the company’s asset-backed security spreads, which the bank said held at 80bps for two-year tranches, while three-year spreads "tightened to 95bps from 100bps."
The analyst also described the funding backdrop as constructive. Morgan Stanley noted that peers with "less consistent credit performance and capital markets execution have raised forward flow capital intra-quarter," and argued that these moves reinforce the view that bearish private-credit fears "look overdone."
Looking ahead, the bank singled out Affirm’s May Investor Forum as a potentially pivotal event. Morgan Stanley expects the company to provide updates on gross merchandise volume, margins and long-term earnings targets at the forum.
Specifically, the bank believes Affirm could present medium-term scenarios that span from below 20% GMV growth to above 30%, and it suggested the company may raise its retained loan and transaction margin outlook to 3.5%-4.0%.
Morgan Stanley further expects Affirm to introduce a fiscal 2028 GAAP EPS target in the range of $2.50 to $3.00, a figure the bank described as "quite conservative."
"AFRM offers what we view as one of the most attractive risk-reward setups in our coverage, with our $76 PT (~27% upside) implying a ~24x FY28 GAAP EPS multiple, supporting our Top Pick status," Faucette concluded.
The combination of Morgan Stanley’s upgrade, the bank’s view on ABS spreads and the potential for concrete targets and scenarios at the May Investor Forum underpinned the market response in early trading.
Contextual note: The research note emphasized both the funding environment and the upcoming investor forum as key elements that could prompt analysts and investors to revisit estimates and valuations.