SoFi soars after Morgan Stanley identifies 2 catalysts that could drive 54% upside in the fintech company

• SoFi stock soared as much as 14% on Monday after Morgan Stanley called it the "fastest growth story in consumer finance."
• The bank initiated SoFi with an "Overweight" rating and set a $25 price target, representing 54% in potential upside.
• These are the two catalysts Morgan Stanley sees driving SoFi stock higher over the next year.
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SoFi stock soared as much as 14% on Monday after the company received bullish praise from Morgan Stanley, which called it the "fastest growth story in consumer finance."

The bank initiated SoFi with an "Overweight" rating and a $25 price target that represents 54% upside potential from Friday's close.

SoFi's strength is derived from its start as a consumer lender primarily focused on refinancing student loans to a lower rate, according to the bank.

"Lending is the toughest part of consumer finance as you need to understand credit and deliver excellent customer service. But the reward is higher loyalty when you help them solve their cash flow problem and leave them with more money in their pocket," Morgan Stanley said.

After successfully making a loan to a consumer, SoFi is able to cross-sell them different financial services in the investing, banking, and mortgage sectors. That activity now represents 24% of SoFi's total products, and should drive further growth. Morgan Stanley expects SoFi to double its customer base to 5.3 million over the next two years.

Aiding in that growth will be two catalysts that are on the horizon, according to the bank.

First, SoFi's student loan refinance business is set to surge after the government ends its deferment on student loan payments in February. The program allowed student loan borrowers to pause payments amid the COVID-19 pandemic, temporarily removing the incentive to refinance to a lower-rate private loan.

Expiration of the government's student loan deferment program should drive a 70% increase in student loan originations in 2022 and return to pre-pandemic levels, according to Morgan Stanley.

Second, SoFi's approval of its bank charter could boost total revenues by 10% within its first year solely based on the benefits of gaining access to the same low interest rates other banks have. Lowering SoFi's cost of capital is essential to improving profits when loaning out money at a higher interest rate. Morgan Stanley expects SoFi to receive approval for its pending bank charter in early 2022.

Risks to Morgan Stanley's bull case on SoFi stock include the fintech not receiving approval for its bank charter, a sharp pullback in brokerage revenues due to crypto volatility, and intense competition from legacy financial companies and fintech upstarts.