SoFi's stock had a historic drop earlier this week. What if it was misguided?

By Emily Bary

A Mizuho analyst thinks Wall Street was too downbeat on the company's capital raise, which he views positively

SoFi Technologies Inc.'s bid to raise capital sparked a record one-day selloff in its shares earlier this week. But what if Wall Street was misunderstanding the impact of that financial move?

Mizuho analyst Dan Dolev seems to think that's the case. Despite sharp pressure on the stock at the time of the announcement Tuesday, he thinks shares will move higher "once investors understand the many positives" associated with SoFi's (SOFI) convertible-note offering and equity exchange.

See also: Here's why SoFi's stock just logged its worst day on record

For one, Dolev calculates that SoFi's $600 million equity exchange could deliver a 10% increase to the company's tangible book value per share and boost its capital ratio by upwards of 200 basis points. And at the same time, he doesn't expect the transaction will dilute earnings per share this year in any "meaningful" way.

Additionally, Dolev commented that the company's roughly $750 million convertible-debt offering could save SoFi more than $60 million in annual interest expense, such that the company could pay back its roughly $90 million in capped-call costs within a year and a half.

He further noted that the capped call means that shares won't be diluted unless SoFi shares double to $14.54 a share from the $7.27 deal-closing price.

SoFi shares dropped 15.3% in Tuesday's session after the company announced the capital raise, logging their largest single-day percentage decline in the process. But the stock is up 3.6% in Friday trading, which would make for its third session in a row of gains.

Dolev, for his part, has a buy rating and $12 target price on SoFi shares, and he thinks more could join his camp soon. The convertible offering "could help convert bears into bulls," he said.

-Emily Bary

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

03-08-24 1458ET

Copyright (c) 2024 Dow Jones & Company, Inc.