Wedbush downgrades Upstart over weakening delinquency trends

Wedbush Securities analyst David Chiaverini downgraded the shares of Upstart Holdings Inc. to "underperform" from "neutral" over weakening delinquency trends on recent 2021 vintage securitizations.

Those securitizations seem to be deteriorating more quickly compared to the company's 2018, 2019 and 2020 vintage securitizations, Chiaverini wrote. "[T]he company has yet to operate through a true recession, which means its underwriting model has yet to be battle-tested," the analyst continued.

Weakening delinquency trends, along with macro and geopolitical risks, might dampen the appetite of Upstart's credit buyers and the securitization market, according to Chiaverini.

Moreover, the analyst sees reliance on third-party funding as the biggest risk to the company, adding that such risk is inclined to worsen during recessions and market turmoil, which may be in the process of unfolding.

Despite concerns, Chiaverini believes Upstart could report good first-quarter results and reiterate its 2022 guidance, noting that the concerns may not manifest until the second quarter or third quarter.

Chiaverini lowered the price target to $75 from $110. The analyst estimates EPS of $1.05 for 2022 and $2.05 for 2023.