Morgan Stanley On LendingClub Upgrade: $7 Stock In 2017

LendingClub Corp LC seems to have a stable outlook and appears poised for a return to growth, Morgan Stanley’s James E. Faucette said in a report. He upgraded the rating on the company from Equal Weight to Overweight, while establishing a price target of $7.

Analysts are largely bullish on LendingClub’s EPS, scheduled to be reported Thursday.

7 Reasons To Be Positive

Faucette mentioned the following positives for LendingClub:

1. New management hires: The several key hires recently made by the company have “the right blend of backgrounds to restore investor confidence and get the business back on track,” Faucette commented.
2. Stable capital availability: Feedback from institutional and retail investors indicate limited downside risk to origination, suggesting stable capital availability for 2017.
3. Sustainable data analytics advantage: “We expect slow progress from banks to keep the advantages established by FinTechs firms such as LC intact over the near term,” the analyst wrote.
4. No brand damage: Faucette believes that there is no evidence suggesting any damage to LendingClub’s brand among borrowers.
5. Incremental data suggest stability: “SEC data show trough is past; competition is more hamstrung; banks are returning to invest more quickly than expected; new product launch indicates LC is back to normal operating rhythms; securitization volumes show robust interest in marketplace assets,” the Morgan Stanley report noted.
6. Pricing flexibility: LendingClub has witnessed only a modest increase in loss rates, similar to that experienced by other consumer lenders. The company has the flexibility to raise pricing.
7. Risk/reward attractive: Given LendingClub’s long-term opportunity, the stock appears “inexpensive against internet comps” and provides downside protection.

The company now faces competition from Marcus, Goldman Sachs Group Inc GS's online consumer-lending platform that went live in October.