Wall Street's First Reaction To Newly Public Fintech Firm GreenSky

Fintech company GreenSky LLC GSKY traded on a public market for the first time in late May. The equity's "quiet period" expired Monday, and multiple Street analysts released research reports to clients.

The Analysts

Sandler O'Neill's Christopher Donat initiated coverage of GreenSky with a Hold and $26 price target.

Morgan Stanley's James Faucette initiated with an Overweight and $28 price target.

Credit Suisse's Paul Condra initiated with an Outperform and $29 price target.

Sandler O'Neill: Don't Ignore The Risks

A deterioration in the consumer credit cycle isn't expected in the coming years, but the risk to the company's earnings from any hypothetical credit-related development would be "material" and shouldn't be ignored by investors, Donat said in the initiation note. The company itself acknowledges that a 100-basis point increase in portfolio credit losses would increase its cost of revenue by $37.7 million in 2017. In an adverse credit environment, incentive payments from bank partners would decrease, the analyst said. 

GreenSky's stock is trading at 19.2x on 2019 estimated EV/EBITDA, which is an "appropriate" 1.5x-turn discount to the median payment networks due to "small risks" from potential credit and liquidity concerns, according to Sandler O'Neill. 

Related Link: Donnelley Financial: DA Davidson Says This Relative Newcomer To Fintech Has Room To Run

Morgan Stanley: Attractive Blue Sky Scenario

GreenSky boasts a "highly efficient" app and system that can conduct transactions within seconds, Faucette said in the initiation note. Encouragingly, the company's penetrable addressable market size within consumer spending is $156 billion versus its current penetration of $4 billion, the analyst said. 

GreenSky also benefits from high barriers for competing platforms and a first or early mover advantage, Faucette said. The company does not carry much credit risk on its balance sheet, as that part of the business is assumed by bank partners, he said. 

Credit Suisse: Banks Need GreenSky

Small and mid-sized banks continue to "fall further behind" in the fintech space, which implies the group is more likely to seek out partnerships with fintech innovators like GreenSky, Condra said in the initiation note. Banks would benefit from a very low-cost customer acquisition channel, and at the same time consumers take advantage of a "low-hassle" financing platform at attractive rates, the analyst said. 

GreenSky should be able to grow its revenue by 33 percent in 2018, 31 percent in 2019, and 25 percent in 2020, according to Morgan Stanley. EBITDA margins should grow from 44 percent this year and move slightly higher over the near-term to 45 percent, driving earnings per share growth in the high-20-percent level, Faucette said. 

Related Link: Where Is Amazon Investing In Fintech?