Affirm Holdings, Inc. (NASDAQ:AFRM) shares are trading higher after Wedbush analyst David J. Chiaverini upgraded the rating to Neutral (from Underperform) and raised the price target to $45 (from $25).

The analyst expects a lower interest rate environment to benefit the company through reduced funding costs and incremental GMV growth.

A 100 bp rate decline could improve RLTC margins by 40 bp in fiscal 2025, though the company may ease underwriting standards to maintain a 3%-4% RLTC margin, potentially boosting GMV, adds the analyst.

Chiaverini writes that the credit quality has consistently exceeded expectations in the higher rate environment, and he anticipates it will remain solid in the near term, assuming a soft economic landing.

The analyst expects the new Apply Pay partnership to boost growth, but competition may arise due to its non-exclusive nature.

While the Affirm Money account, B2B product, and UK expansion may contribute to modest GMV growth over time, the analyst does not foresee these initiatives significantly impacting fiscal 2025 GMV, as they are still in the early stages or yet to launch.

Meanwhile, the analyst says that the risk of a recession remains, particularly given recent concerns from major retailers about consumer health.

The analyst raised the EPS estimates for fiscal 2025 and 2026 to -$0.23 and $0.87, respectively, up from -$0.60 and $0.80, due to improved assumptions on other income.

Investors can gain exposure to the stock via Amplify Digital Payments ETF (NYSE:IPAY) and Tidal Trust II Clockwise Core Equity & Innovation ETF (NYSE:TIME).

Price Action: AFRM shares are up 4.91% at $49.39 at the last check Monday.

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