Shares of Affirm (NASDAQ:AFRM) climbed 3.5% in premarket trading on Friday after Morgan Stanley upgraded the stock to its Top Pick, pointing to what it described as an “overdone” concern around private credit and a strong pipeline of potential catalysts.
In a research note, analyst James Faucette said he expects a high probability of upward revisions to forecasts, alongside the company’s ability to “sustain 30%+ GMV growth & AOI margins over the near to medium term.”
The bank argued that worries tied to private credit exposure appear exaggerated, noting that spreads on Affirm’s asset-backed securities remained stable at 80 basis points for two-year tranches, while three-year spreads “tightened to 95bps from 100bps.”
Faucette also highlighted a supportive funding environment, adding that competitors with “less consistent credit performance and capital markets execution have raised forward flow capital intra-quarter,” reinforcing the view that bearish sentiment around private credit “look overdone.”
Morgan Stanley identified Affirm’s upcoming May Investor Forum as a key potential catalyst, where the company is expected to provide updates on gross merchandise volume, margins, and longer-term earnings targets.
The bank said Affirm could present medium-term scenarios ranging from below 20% GMV growth to above 30%, and may also lift its outlook for retained loan and transaction margins to between 3.5% and 4.0%.
Additionally, Morgan Stanley anticipates that Affirm may introduce a fiscal 2028 GAAP EPS target of $2.50 to $3.00, which it described as “quite conservative.”
“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,” Faucette concluded.