Morgan Stanley: LendingClub's Investor Day Optimism Overshadowed By Modest Guidance

Peer-to-peer lending company LendingClub Corp LC hosted its 2017 Investor Day on Thursday. The optimistic message relayed at the event was tempered by the muted guidance issued by the company, according to a Morgan Stanley analyst. 

The Analyst

Morgan Stanley analyst James Faucette maintained an Overweight on the shares of LendingClub and lowered the price target from $6.50 to $6.

The Thesis

LendingClub narrowed its expectations to a more modest top-line growth of 15-20 percent and margin of 20 percent by 2020, with the narrowing being more than what bulls expected, Faucette said in a Friday note. (See Faucette's track record here.)

The expectations were at least homogenized, the analyst said.

LendingClub also shed light on market opportunity and its internal growth initiatives — but the projected growth and profitability fell short of expectations, Faucette said.

The spelled-out objectives should help align Street and investor expectations, according to Morgan Stanley. 

"We expect LC to go through a period of reconstituting its investor base as some growth-oriented investors churn away, but this should [be] positioning the stock to start working again if it can deliver beats/raises against this new, lower benchmark," Faucette said. 

Morgan Stanley lowered its 2018 revenue estimate from $697 million to $693 million and also revenue estimate through 2020 to yield $961 million, down from a previous estimate of $976 million.

To account for LendingClub's elevated auto and tech spend, the firm lowered its 2018 adjusted EBITDA estimate from $98 million to $82 million. The 2020 estimate was lowered from $203 million to $189 million.

Offering its key takeaways from the event, Morgan Stanley said:

• After rebuilding over the past 18 months, LendingClub has been rebuilt and re-energized in 18 months.
• Credit and underwriting will remain a focus area for the company.
• Consumer unsecured total addressable market, or TAM, is now seen at $300 billion to $350 billion. This compared to the $390 billion TAM estimated by the company earlier.
• The investor TAM is bigger at $38 trillion in fixed income, and the company plans to tap into it.

The Price Action

Shares of LendingClub are down 32 percent in the year-to-date period.

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