Barclays analyst Benjamin Budish has upgraded Robinhood Markets (HOOD) from Underweight to Equal-Weight, raising the price target from $18 to $20. This upgrade comes after observing Robinhood’s transformation from a platform primarily associated with meme stocks to a more established and competitive player in the financial market, showcasing significant improvement in its underlying business.
Budish highlights the maturing nature of Robinhood’s model, with potential for future growth driven by various factors. These include the introduction of new products like futures and credit cards, expansion into new geographies such as the UK and EU for brokerage and crypto services, and establishing new channels through acquisitions like that of Bitstamp for institutional clients.
While acknowledging potential challenges from lower interest rates or other market factors, Budish now considers the risk/reward for Robinhood’s stock more balanced, prompting the reversal of their previous Underweight rating.
The analyst recognizes that Robinhood has significantly benefited from favorable retail trading conditions, such as constructive equity markets and high interest rates, which have boosted trading activity and cash inflows. Additionally, the recovery in the crypto market has positively impacted the company’s financial performance and stock value.
For fiscal year 2024 (FY24), Budish forecasts Robinhood to report revenues of $2.673 billion, with adjusted earnings per share of 97 cents. Despite acknowledging ongoing near- and medium-term risks to the business, the upgrade rating is based on improvements in the company’s profit and loss statement (P&L), a promising product pipeline, and a more reasonable valuation.
Looking ahead, Budish cautions that lower interest rates could pose a challenge, especially if trading revenues fail to provide the anticipated offset. However, this potential impact might be mitigated by expanding product offerings or through geographic expansion, which could increase asset-gathering opportunities.
Given that Robinhood’s future growth hinges on geographic expansion and new product rollouts, Budish foresees potential for increased competition, particularly in Europe. Furthermore, there are execution risks associated with the company’s efforts to achieve product parity with larger competitors. For FY25, the analyst predicts revenues of $2.782 billion with adjusted earnings per share of $1.02.
At the time of this report, HOOD shares were trading lower by 3.61% to $18.96.
