Key Moments
- Affirm shares rose 3.5% in premarket trading after Morgan Stanley designated the stock as its Top Pick.
- Morgan Stanley sees potential for Affirm to sustain 30%+ GMV growth and attractive AOI margins over the near to medium term.
- The bank set a $76 price target, implying about 27% upside and a roughly 24x FY28 GAAP EPS multiple.
Analyst Upgrade Drives Premarket Move
Shares of Affirm Holdings Inc (NASDAQ:AFRM) advanced 3.5% in premarket trading on Friday after Morgan Stanley upgraded the stock to its Top Pick, arguing that investor concerns related to private credit have gone too far and that the company has a strong pipeline of potential catalysts.
In a research note, analyst James Faucette said he sees a strong probability that estimates for Affirm will move higher, and highlighted the company’s ability to “sustain 30%+ GMV growth & AOI margins over the near to medium term.”
Private Credit Concerns Seen as Overstated
Morgan Stanley contended that worries about private credit exposure are exaggerated. The note pointed out that Affirm’s asset-backed security spreads remained at 80bps for two-year tranches, while spreads on three-year tranches “tightened to 95bps from 100bps.”
The analyst also described the funding environment as supportive. The note observed that peers with “less consistent credit performance and capital markets execution have raised forward flow capital intra-quarter,” reinforcing Morgan Stanley’s view that negative sentiment on private credit “look overdone.”
Funding and Market Backdrop
According to the bank, the behavior of funding markets and the ability of other players to secure capital mid-quarter support the argument that the backdrop for Affirm remains constructive despite headline concerns around private credit.
| Metric / Indicator | Detail |
|---|---|
| Premarket share move | +3.5% |
| 2-year ABS spreads | 80bps |
| 3-year ABS spreads | Tightened to 95bps from 100bps |
| Price target | $76 |
| Implied upside | ~27% |
| Implied FY28 GAAP EPS multiple | ~24x |
| Expected FY28 GAAP EPS range | $2.50 to $3.00 |
May Investor Forum and Strategic Outlook
Morgan Stanley identified Affirm’s May Investor Forum as a key potential catalyst. The bank expects management to provide updates on gross merchandise volume trends, margin performance, and long-term earnings objectives.
The note suggested that Affirm could present medium-term scenarios that span from below 20% GMV growth to above 30%. Morgan Stanley also believes the company may lift its outlook for retained loan and transaction margins to a range of 3.5%-4.0%.
Long-Term Earnings Targets and Valuation
The bank anticipates that Affirm will introduce a fiscal 2028 GAAP EPS goal in the range of $2.50 to $3.00, a forecast it described as “quite conservative.”
Faucette concluded that “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.”
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