Analyst Thinks Lending Club Deserves More Credit, Upgrades To Outperform

LendingClub Corp LC was upgraded by Oppenheimer Thursday on “compelling” risk/reward levels.

The online peer-to-peer marketplace is creating a stickier investor base with a higher bank and retail mix and utilizing a $760 million balance sheet to grow its securitization channel, analyst Jed Kelly said in a note.

Oppenheimer upgraded Lending Club Corp from Perform to Outperform and set a $7 price target. The firm also increased its 2017 and 2018 revenue projections for Lending Club by 1 percent and increased its 2017 and 2018 EBITDA estimates by 3 and 5 percent, respectively.

The San Francisco-based company has had stumbles since its founding in 2006, including the resignation of CEO Renaud Laplanche in 2016 after a scandal revolving around $22 million in near-prime loans to a single investor.

Laplanche’s departure sent shares tumbling 25 percent in May 2016.

Key Upsides

Bank and retail investors were up 28 percent and 15 percent quarter over quarter, respectively, in the first quarter, and represent 61 percent of originations at Lending Club, Kelly said.

The lending platform’s first sponsored securitization, which saw $279 million in loans issued, was oversubscribed and brought in new investors, according to Oppenheimer.

“Management expects a $10-15 million revenue contribution from securitizations, on $400 million of securitization volume,” Kelly said. “With net cash of $761 million and holding 5-15 percent of issuances, we see securitizations as an opportunity to extract more value from investors.”

Leading The Marketplace Sector

Lending Club faces competition from the Goldman Sachs Group Inc GS-owned Marcus, which has clocked $1 billion in originations this year and $15 billion in deposits. SoFi has notched $1.4 billion in consumer loan securitizations year to date, according to Oppenheimer.

But the company remains the top lender in its space, the research firm said.

“However, per comScore data, LC is still generating [twice] the user traffic vs. closest competitors, indicating the company’s ability to maintain its lending position,” Kelly said.

Paid marketing offers the “most opportunity for upside,” according to Oppenheimer. The firm is modeling sales and marketing at 2.34 percent of $9.1 billion in originations in 2017.

At last check, shares of Lending Club were up 5.14 percent at $5.22.

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