Impending rate cuts could help shares of Affirm claw back some of their year-to-date losses, according to Bank of America. In a Tuesday note, the bank upgraded shares of Affirm to a buy rating from neutral, pointing to increased profitability prospects. Affirm offers a buy now, pay later service for its customers. Shares of Affirm have plummeted 45% in 2024. Analyst Jason Kupferberg’s $36 price objective implies a potential 34% upside for the stock. AFRM YTD mountain AFRM YTD chart In the medium term, Kupferberg believes Affirm has an “achievable” plan to boost profits, which will in turn increase its share price. The company should also benefit from the next Federal Reserve rate cutting cycle. “A lower interest rate environment would be beneficial to AFRM’s funding costs and for gain on loan sales,” the analyst said. “AFRM recently moved its merchants to a 36% APR cap on loans, up from 30% previously, which should remain a tailwind for yields and GMV [gross merchandise value] growth.” While investors largely believe the U.S. central bank will leave rates unchanged in July, the market is pricing in up to three rate cuts in 2024 and four in 2025. However, some investors say this is overkill. All eyes will be closely watching Federal Reserve Chair Jerome Powell during Wednesday’s press conference for further clues. Outside of a conducive macroeconomic environment, Kupferberg expects Affirm’s fiscal fourth-quarter report, which is due out late August, to be a potential positive catalyst for the stock. “AFRM may communicate a more bullish message on profitability, while delivering F4Q upside and guiding F25 solidly in-line w/ Street,” Kupferberg wrote. “New Apple relationship, further scaling of Affirm Card, and potential geographic expansion of existing large partnerships should all be supportive of F25/F26 forecasts.” — CNBC’s Michael Bloom contributed to this report.
