LendingClub To See Earnings Growth As Net Interest Margin Inflects Higher Next Year: Analyst Forecasts Upside

Piper Sandler analyst Brad Capuzzi initiated coverage on LendingClub Corporation LC with an Overweight rating and $8 price target.

According to the analyst, LC is well positioned to see earnings growth as the net interest margin inflects higher in 2024 due to lower funding costs, significant cost reductions, and net charge-offs moderating in the back half of 2024. 

LC has the opportunity to lower funding costs, given the deposits are fully funding loans held for investment. 

In addition, the stock is undervalued, trading at 0.55x P/TBV, given the analyst's estimate of 10% ROTCE. 

Over the long-term, the analyst forecasts ROTCE to trend up to the low to mid-teens and should warrant a P/TBV multiple near 1.0x, implying 50% + upside to where the stock is trading today.

Furthermore, the analyst sees an additional upside to ROTCE if LC were to start a share repurchase program and redeploy its excess cash into higher-yielding assets. 

Capuzzi estimates LC can produce 40 bps of net interest margin (NIM) expansion through 2024 and into 2025 as deposit costs start to moderate while asset pricing stabilizes.

LC has the capacity to become less competitive on deposit pricing, with loan growth slowing and the loan/deposit ratio dropping to 85%. 

Capuzzi estimates 110 bps of ROA expansion in 2025 due to improving credit.

For FY23, the analyst expects the company to report revenues of $861 million, with EPS of $0.31.

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Price Action: LC shares are trading higher by 10% to $6.14 on the last check Tuesday.

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