Citizens Financial Group has downgraded Upstart Holdings, moving the shares from Market Perform to Market Underperform and establishing a $20 price target. The brokerage said that even after a roughly 23% decline following the company's fourth-quarter results and amid broader weakness among fintech lenders with private credit exposure, Upstart's valuation remains elevated relative to peers.
Citizens noted the companys guidance for a three-year revenue compound annual growth rate (CAGR) of 35% provides clearer sightlines on earnings potential at scale, but emphasized that this medium-term outlook does not incorporate any explicit assumptions for deterioration in consumer credit quality or employment over the next 36 months. In the brokerages view, that omission leaves upside assumptions exposed to cyclical downside.
The research house characterized Upstart less as a high-growth, standalone fintech and more as a cyclical consumer finance platform. Accordingly, Citizens argued the company is better evaluated using traditional financial measures - including GAAP earnings, net income and book value - rather than primarily on adjusted metrics. The firm said this perspective aligns the company with peers such as LendingClub and Pagaya Technologies, with SoFi Technologies viewed as a somewhat less direct comparator. Citizens also pointed to digital lenders Enova International and OppFi as relevant reference points.
A central element of Citizens critique was the persistence of stock-based compensation and the absence of management-provided net income guidance. The brokerage said that managements confirmation that stock-based pay is not expected to slow reinforces its contention that adjusted profitability measures are less useful for valuation.
Citizens added that the medium-term loan origination outlook for Upstart appears more aggressive than that of peers, and that such ambition increases downside risk if origination growth does not materialize as planned.
Key considerations from the downgrade
- Valuation: Citizens believes current share levels do not reflect comparisons to similar consumer lenders despite a recent ~23% share price pullback.
- Financial metrics: The brokerage prefers GAAP measures such as net income and book value given stock-based compensation and the lack of net income guidance.
- Outlook and origination risk: The three-year 35% revenue CAGR guide gives medium-term clarity but does not discount for potential consumer credit or employment deterioration; origination targets appear aggressive versus peers.
Risks and uncertainties noted by Citizens
- Short-term market dynamics: A short-term rebound in the stock after the recent sell-off could invalidate the downgrade in the near term.
- Market technicals: High short interest could precipitate a squeeze, creating upside pressure on the shares independent of fundamentals.
- Execution and scaling: Better-than-expected progress in scaling new loan products and establishing funding partnerships would reduce the downside risk identified by the brokerage.
Citizens analysis centers on valuation comparatives, the relevance of GAAP measures when stock-based compensation remains elevated, and the risk that Upstarts medium-term growth assumptions may outpace what peers are planning to achieve. The downgrade highlights sensitivities in how investors should view fintech platforms that increasingly resemble traditional consumer finance businesses in earnings cyclicality and funding dynamics.