Chime Stock Is Finally Getting Ratings From Wall Street. What Analysts Think.

Chime offers bank accounts via partners backed by the FDIC. (Courtesy Chime)

Happy coverage-initiation day to all who celebrate!

It has been 25 days since Chime Financial went public, ending a so-called quiet period. Investment banks that underwrote the June 11 initial public offering have released their first research notes on the company. The consensus is that Chime is a Buy.

The so-called neobank, which offers bank accounts through partners backed by the Federal Deposit Insurance Corp., already has a highly engaged core of users and an enviable record of revenue growth. Now, analysts say, Chime has the potential to attract even more low- and middle-income customers and achieve profitability—something it has never done over a full year.

The stock was up 2.6% to $32.13 on Monday.

Wall Street’s endorsements come at a good time for the company. Chime stock soared 37% to $37.11 from a listing price of $27 on its first day of trading, but has since surrendered some of those gains, ending Thursday at $31.32. The market was closed on Friday for the July 4 holiday.

Analysts at J.P. Morgan issued an Overweight rating and a $40 price target for the stock in a research note Monday, arguing that Chime has “cracked the code of scaling financial services as a non-bank.”

Products like overdraft protection and early paycheck deposits have made Chime an appealing primary banking option for Americans making less than $100,000 a year, which J.P. Morgan estimates as an $80 billion annual market.

The company can leverage data from its user base, which already sits at 8.6 million people, to offer new low-fee products, drive more spending, and attract new customers “in a virtuous cycle,” the analysts wrote.

J.P. Morgan forecasts the company will achieve profitability under generally accepted accounting principles in 2027, buoyed by 20% compounded annual revenue growth.

Patrick Moley of Piper Sandler agreed that Chime can get to a GAAP profit by 2027. He echoed J.P. Morgan with an Overweight rating and a $40 target price.

More than three-quarters of Chime’s revenue comes from interchange fees paid by merchants for debit and secured credit-card transactions. Moley wrote in a research note that he likes this “fee-based” revenue mix, which keeps costs down for customers.

“We see an opportunity for CHYM to continue winning active members from traditional banks given its value proposition for a majority of Americans who are underserved by traditional financial institutions,” Moley wrote.

But getting new customers is just one part of the revenue equation, noted James E. Faucette of Morgan Stanley. Spending growth among existing users of Chime is also key, considering how much of its income comes from card transactions. Here, too, Faucette see positive signs.

“Over the past 6 weeks, we’ve become more comfortable with the pace of US consumer spending growth,” Faucette said in a Monday note. “Given that backdrop, and with the potential for our forecasts of new users and services growth to prove conservative, we are optimistic about Chime’s ability to maintain fast revenue growth.”

Faucette issued an Overweight rating and a $39 price target.

While the majority of analysts on Wall Street have offered positive outlooks for Chime, a few have been slightly more cautious, considering the stock is still well above its $27 offering price.

Timothy E. Chiodo of UBS agreed that Chime will continue to gain share in consumer banking, forecasting annual growth of 15% in payments revenue. But some of those gains are reflected in the stock’s valuation already, Chiodo said, and the lack of near-term profitability puts pressure on Chime to deliver in the long run.

UBS initiated coverage with a Neutral rating and a $35 target price.

Write to Nate Wolf at nate.wolf@barrons.com