Compass upgrades Affirm as it sees selloff after Walmart partnership loss overdone

Investing.com -- Compass upgraded Affirm Holdings (NASDAQ:AFRM) Inc to Buy from Neutral and raised its price target to $64 from $61 saying the selloff following the loss of its Walmart (NYSE:WMT) partnership is overdone and banking on continued growth in direct-to-consumer products.

FRM shares dropped around 13% after Klarna Group announced a partnership with OnePay to power installment loans at Walmart in the U.S., ending Affirm’s exclusive partnership.

Compass believes the selloff is overdone, estimating the impact of the Walmart loss at approximately 5% of gross merchandise volume and 2% of adjusted operating income in the six months ended December 31, 2024.

"While a loss is a loss, the pullback in AFRM shares seems overdone, over 2.5x the revenue loss and over 6.5x the adj. operating income loss," Compass noted.

The loss of Walmart also eliminates future overhang risks related to pricing and renewals, which have historically pressured payments companies.

Compass noted that Walmart-backed OnePay likely offered competitive pricing to secure the deal, especially with Klarna preparing for an IPO.

While the market should assume that AFRM will eventually no longer be a partner to WMT, AFRM continues to be an integrated merchant partner of WMT and could remain a partner in a more limited capacity, Compass added.

Compass raised its price target to $64 from $61, implying a roughly 55% compound annual growth rate in tangible book value per share over the next 10 quarters.

“AFRM is very well positioned to outperform and that the recent pullback in shares creates a buying opportunity insofar as it does not give AFRM credit for strong growth, operating leverage and upside optionality,” analyst added.