Bull of the Day: LendingClub Corporation (LC)
Zacks Investment Research | Nov 19, 2021 05:00AM ET
LendingClub (NYSE:LC) Corporation LC went public in 2014 as a purely digital peer-to-peer lending firm. LC struggled for years for various reasons. The firm then found new life amid the global fintech boom and LendingClub changed its long-term trajectory when it purchased Radius Bancorp in the early part of 2021.
LC’s Fintech Story
LendingClub is a diversified, web-based lending company that allows customers to take out loans for almost any purpose, from auto loans and other larger purchases such as home improvements to paying down credit card debt. The firm normally allows people to borrow up to $40,000, typically with a fixed term and fixed interest rate, on a regular monthly payment schedule.
The company boosted its long-term outlook when it bought digital-only bank Radius Bancorp. The acquisition, which closed in February 2021, enabled LendingClub to keep more of the loans it generates on its own balance sheet.
For example, it retained $636 million of loans, or about 20% of originations during Q3. This was “in line” with its 15% to 25% target. The practice allows the firm to collect recurring interest income instead of simply selling off all of the loans it generates. The deal also provides a more direct pathway to becoming a modern, digital-based bank, with a consumer focus.
The company utilizes its AI-driven “credit decisioning” and machine-learning models to help determine what customers it will provide loans. LendingClub boasts that its models help it offer lower credit rates, while also reducing its own delinquency rates—35% lower delinquency rates compared to the competitive set. Since its founding in 2007, nearly 4 million members have taken on various loans through the company.
LendingClub’s growth potential is rather large in a world driven by credit and digital financial services, both large-scale and on the consumer level. Its digital focus will help it grow and the firm is already seeing “half of its members come back for a second loan.” CEO Scott Sanborn said on its earnings call that it benefits since the “loans originate at a fraction of the cost compared to loans to new members and demonstrate lower credit risk.”
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The revamped LendingClub is currently expanding its portfolio with newer products. These include products like auto loan refinancing and its entry into the red-hot “buy now, pay later” space. More broadly, the revamped LendingClub aims to offer a “broad range of products, helping our customers manage their lending, spending and savings.”
Recent Performance and Outlook
LendingClub topped our Q3 estimates at the end of October, with revenue up 246% YoY and 20% sequentially, which is a better comparison given the timing of its Radius Bancorp deal. Meanwhile, new recurring stream of net interest income grew 42% sequentially and marketplace revenue grew 15% sequentially.
The company’s deposits grew 12% sequentially to $2.8 billion. And it crushed our adjusted earnings estimate for the third period running.
Looking ahead, Zacks estimates call for LendingClub’s fiscal 2021 revenue to soar 156% to $804.1 million, with FY22 set to climb another 41% higher to $1.13 billion. And it’s expected to swing from an adjusted loss of -$1.53 a share to +$0.11 this year and then skyrocket all the way to +$1.52 in 2022.
The nearby chart shows how far LC’s consensus earnings estimate have climbed since its report, with FY21 up from -$0.12 to its current levels and 33% higher for FY22. This bottom-line positivity helps LendingClub earn a Zacks Rank #1 (Strong Buy) right now.
Other Fundamentals
LendingClub shares have certainty skyrocketed in the last 12 months, up well over 500% from under $7 a share to Thursday’s $41 per share levels. Luckily, LC shares have cooled off a bit as Wall Street took profits after its huge post-Q3 release surge from around $32 a share to nearly $50 in only a few sessions.
The stock is now trading around 15% below its recent highs and it’s fallen from above overbought RSI levels (70 or higher) back down near neutral at 52.
LendingClub is also trading at a 33% discount to where it was three months ago at 30.1X forward 12-month earnings. This backdrop could provide the stock with room to climb, especially considering some analysts have raised their price targets to well over $50 a share recently.
Bottom Line
LendingClub is part of a larger group of fintech companies expanding their scope in an effort to become something akin to modern digital native banks poised to thrive in the digital-everything world.
LC is currently focused on the consumer side, while others such as Square SQ are trying to do both. But Square stock trades at around $230 a share. This makes Square a bit less attainable for some investors and SQ trades at sky-high forward 12-month earnings multiples.
LendingClub lands an “A” grade for Growth in our Style Scores system and its industry sits in the top 30% of over 250 Zacks industries. Plus, three of the five brokerage recommendations Zacks has are “Strong Buys,” with nothing beneath a “Hold.”
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