Robinhood (HOOD.US) upgraded to Buy, analyst confident on its short-term performance

Shares of Robinhood Markets(HOOD.US) rose 3.46% on Monday as Piper Sandler analyst Patrick Moley upgraded the stock to "overweight" from "neutral," saying he remains confident in the company's near-term performance despite the risk of interest-rate cuts.

Moley, who raised his price target to $23 from $20, made the upgrade after the stock fell 26% from its 52-week high of $24.63 on July 16.

"We believe this pullback presents an attractive entry point into this innovative and rapidly growing platform," he wrote.

The company reported better-than-expected second-quarter earnings and revenue on Wednesday, while also announcing that its Gold service had a record 2 million subscribers, up 61% year over year.

However, the prospect of interest-rate cuts by the Federal Reserve as a way to counteract inflation and slowing economic growth poses a threat to the company's business. Chief Financial Officer Jason Warnick said on a conference call that a 25-basis point cut (0.25 percentage point) would reduce net interest income by $40 million.

"Overall retail transaction activity should more than offset the negative impact of interest-rate cuts," Moley wrote. "We estimate that transaction revenue would need to increase only about 3% to offset the negative impact of a single interest-rate cut."

Moley isn't the only analyst bullish on Robinhood. Of the 18 analysts surveyed by FactSet, eight recommended "buy," eight rated "hold" and two suggested "sell."

Craig Siegenthaler of Craig-Hallum Securities also raised his price target to $32 from $28 on Monday while maintaining a "buy" rating. Siegenthaler expects the company to "continue to benefit from the overall market trend and from increased market share from its competitors due to its competitive pricing (zero-commission options trading, lowest margin loan rates in the industry, 5% cashback on Gold service), strong investor community and highly rated user experience and interface."

Robinhood has gained 44% year to date.