On Friday, UBS resumed coverage on Pagaya (NASDAQ:PGY) Technologies (NASDAQ:PGY), issuing a Neutral rating with a price target of $11.00. The stock, currently trading at $8.71, has experienced significant volatility, with a 52-week range of $8.20 to $20.00.
According to InvestingPro analysis, the company appears slightly undervalued based on its proprietary Fair Value model. The firm highlighted the company's potential for revenue growth, projecting approximately 14% compound annual growth rate (CAGR) from 2025 to 2027.
This outlook is based on an improving lending environment, an expanding partner pipeline with notable additions like US Bank/Elavon, and increased loan application conversions. Recent financial data from InvestingPro shows the company achieved 23.4% revenue growth in the last twelve months, with total revenue reaching $970.9 million.
Pagaya's risk retention level averaged around 2-3% of network volume in the third quarter of 2024, thanks to asset-backed securities (ABS) optimization and funding source diversification. The management anticipates this retention level to continue into the fourth quarter of 2024 and plans to scale up funding optimization into 2025. The company's position in the consumer lending market appears to be strengthening with a growing list of lending and funding partners.
However, UBS expressed caution due to uncertainties surrounding the level of credit losses from risk retention assets. Despite the company's strong market position, UBS noted a balanced risk-reward profile for Pagaya. The firm is seeking greater clarity on the trajectory of Pagaya's credit impairments, particularly after the credit impairments experienced year-to-date in 2024.
Pagaya's management expects to recognize impairments in the fourth quarter on the majority of the riskier 2023 ABS structures. These structures have a remaining fair value of approximately $275 million. UBS' position reflects a wait-and-see approach, pending further visibility on the company's handling of these credit impairments. The broader analyst consensus remains cautiously optimistic, with InvestingPro data showing price targets ranging from $11 to $36.
For deeper insights into Pagaya's financial health, valuation metrics, and 11 additional ProTips, subscribers can access the comprehensive Pro Research Report, which provides expert analysis of what really matters for informed investment decisions.
In other recent news, Pagaya Technologies reported robust financial results in their 3Q 2024 earnings call, with an annual revenue rate nearing $1 billion and an adjusted EBITDA of $220 million.
The fintech company also announced strategic plans to reach GAAP profitability by 2025, with significant growth in loans, customer acquisition, and partner relationships. Pagaya has generated over $24 billion in loans and added nearly two million new customers.
Furthermore, the shareholders approved key corporate changes including the phased declassification of the board of directors, amendments related to executive officer employment, and an adjustment to the ownership threshold. These developments aim to enhance governance and align with shareholder interests.
In addition to these financial highlights, Pagaya Technologies has appointed Cory Vieira as Chief Accounting Officer. Vieira, a seasoned professional with experience at BHG Financial, American Express (NYSE:AXP), and GE Capital, is expected to play a crucial role as the company aims for profitability in 2024. His compensation package includes a base salary of $375,000, a guaranteed 2024 cash bonus of at least $150,000, and a one-time cash bonus of $20,000, along with an equity grant.
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