Barclays Projects Acceleration In Ellie Mae's Mortgage Volume Growth

Mortgage application processor Ellie Mae Inc ELLI is positioned for an increased rate of growth and positive outcomes from its purchase of the cloud name Velocify, according to Barclays. 

The Analyst

Barclays analyst Saket Kalia upgraded Ellie Mae from Equal-Weight to Overweight and increased the price target from $100 to $114.

The Thesis

Ellie Mae's mortgage volume growth could accelerate to 6 percent in 2018 and 12 percent in 2019, with the purchase mix increasing from 60 percent to 70 percent-plus, Kalia said in a Tuesday note. (See the analyst's track record here.) 

The increase in the mix of purchase volume is higher quality, as it is more levered to the trend of millennials entering the home-buying market, he said. 

Kalia said he is now more convinced in his 2018-19 revenue estimates, which call for 22-percent and 16-percent growth, respectively. The conviction is based on the analyst's belief that the recently acquired Velocify is a larger business than initially thought and is poised to grow faster. Lower organic growth could be a pushback to the expectation, the analyst said. 

Barclays projects organic growth improvement in 2019, reflecting the company's ongoing growth profile, as this year is likely to be a "more neutral" one for mortgages, Kalia said. 

Ellie Mae's EBITDA on core plus Velocify in 2019 is likely to be higher than Street estimates, the analyst said. Barclays raised its EBITDA estimate to $192 million in fiscal 2019. 

The Price Action

Shares of Ellie Mae are up about 12 percent over the past year.

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