"Higher for longer" rate environment could benefit Axos Financial - Needham

Investing.com - The possibility of interest rate remaining higher than anticipated for a longer period of time could be "ideal" for Axos Financial (NYSE:AX ), analysts at Needham have said.

In a note to clients placing the digital bank on their "conviction list" and naming it a "top pick" for 2025, the Needham analysts led by Kyle Peterson said that recent comments from Federal Reserve officials suggesting they will carefully approach further rate cuts could be beneficial for the company.

"[We] believe there could be upside to growth and margins if loan prepayment speeds slow and a steeper yield curve helps unit economics on loans priced on intermediate/long-term benchmarks," the analysts wrote.

They added that they expect shares in Axos to outperform their coverage over the next 12 months, and reiterated their "buy" rating and $85 price target for the stock.

"[T]his could be an ideal interest rate environment for Axos," the analysts argued, saying that the possibility of looser regulations and increased domestic investment during the upcoming administration of Donald Trump could also boost the business.

Minutes from the Fed's December meeting released on Wednesday showed that staff at the central bank were uncertain about the impact of Trump’s plans for sweeping import tariffs and mass deportations on inflation.

Fed officials were particularly worried that a recent cooling in price gains may be affected by Trump's policy changes, flagging that the process of inflation easing down to the central bank’s eventual target of 2% “could take longer than previously anticipated.”

These fears, coupled with the rate-setting Federal Open Market Committee already having slashed interest rates by a full percentage point in 2024, persuaded some members to opt for a “careful” approach to further reductions this year, the minutes said.

Following the release, bets that the Fed would choose to leave borrowing costs unchanged at its next couple of upcoming meetings were bolstered, with the first drawdown now not forecast until May at the earliest.

Source: Investing.com