Morgan Stanley's Takeaways From LendingClub's Loan Numbers

Online lending platform LendingClub Corp LC released a regulatory SEC filing which shows a weaker-than-expected loan volume growth, according to Morgan Stanley.

The Analyst

James Faucette maintained an Equal-weight rating on LendingClub with a price target lowered from $23.75 to $17.

The Thesis

LendingClub disclosed in an SEC filing that second-quarter standard loan volume rose 5% from last year and 9% from the prior quarter to $2.17 billion, Faucette said in a Friday note. (See his track record here.)

Both of these figures were short of expectations for total origination growth of 10.8% from last year and 14.4% from the prior quarter, the analyst said. Granted, there methodology used in the filings "has its limits" — but it is nevertheless a "helpful indicator" to gain insight into origination growth, he said. 

Standard loans represent 71% of LendingClub's origination mix, with the remaining 29% coming from custom loan channels like near/subprime, auto and SMB lending, Faucette said.

These categories represent LendingClub's highest growth opportunities, so it would be a mistake to jump to the conclusion that total originations will miss estimates, he said. 

Morgan Stanley's revised $17 price target is based on 11 times 2020 EV/EBITDA on a combination of base and bear case EBITDA assumptions.

The multiple is consistent with the median bank covered by Morgan Stanley over the past two years, which is justified given similarities in how investors view LendingClub through loan growth and credit, the analyst said. 

Price Action

LendingClub shares were down 1.52% at $16.23 at the time of publication Friday.

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