Upstart Holdings is a winner amid better funding and a strong balance sheet, Needham argued on Friday.
Analysts led by Kyle Peterson upgraded shares to Buy from Hold and established a price target of $100. Upstart is a lending marketplace that uses artificial intelligence to assess borrowers' creditworthiness.
Upstart stock gained 9% in Friday trading. Shares have soared 89% this year through Thursday's close.
The analyst team recently hosted investor meetings with Upstart leaders and found reason for optimism.
"Coming off the meetings, we believe that UPST has achieved a proper balance in funding, largely due to the increased appetite and partnerships with committed capital buyers," analysts wrote. "We also expect the funding environment to steadily improve as the short-end of the yield curve continues to come down."
Beyond that, the balance sheet has improved over the last few quarters, the team wrote. The company has reduced the amount of loans held, which lowers direct exposure to credit risk, and it also replaced a convertible bond that matured in 2026 with some that aren't due until 2029/2030.
"We view UPST as a good fit for growth investors, and expect both growth and margins to significantly improve in the coming quarters," Needham added.
Earlier this month, J.P. Morgan analysts Reginald Smith and Charles Pearce were a bit more tentative, arguing that shares appear to have priced in perfection.
The firm downgraded the lending company's stock to Underweight from Neutral but lifted their price target to $57 from $45. The team said it likes the company's artificial intelligence lending platform but continues to struggle with a valuation that reflects the higher originations seen in 2022. It could take at least a few quarters to reach that level, the team said.
In November, Upstart beat quarterly earnings estimates, and management issued upbeat financial forecasts.