Analyst Will Nance raised his rating on Robinhood (ticker: HOOD ) to Neutral from Sell on Monday, saying that the company was approaching its cash value at its current valuation.
Robinhood will benefit from a faster-than-expected increase in interest rates, the analyst said. He estimates that a 3.5% move in rates could add an incremental $549 million to adjusted Ebitda, or earnings before interest, taxes, depreciation, and amortization.
“We expect that HOOD’s net interest revenues derived from balance sheet cash, margin loans, bank sweeps, and client payables will benefit from incremental rate hikes,” he wrote in a research note.
In addition, engagement levels, measured by total trading volumes, have roughly stabilized in the wake of the meme stock trading craze in early 2021, Nance said. The company also is implementing cost-reduction efforts that could help boost margins, he added.
That said, Nance believes Robinhood’s fundamentals “are still very weak” as declines in retail trading have pressured margins and active users. The analyst lowered his price target to $9.50 from $11.50 to reflect the environment.
Analysts are split on how to rate Robinhood, with 33% rating the stock a Buy, 47% rating it a Hold, and 20% a Sell. Atlantic Equities downgraded the stock to Underweight from Neutral in mid-June, citing weakening market conditions and plummeting cryptocurrency valuations.
Robinhood stock was up 2.5% to $8.20 in premarket trading on Monday. The shares have lost 55% this year.
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