On Thursday, BTIG initiated coverage of Lending Club (NYSE:LC), a leading digital marketplace bank, with a Buy rating and a price target of $12.00. The firm's analysis suggests that while the target is ambitious based on the company's estimated earnings per share (EPS) for 2024 and 2025, it is justified by the projected earnings for 2026.
According to BTIG, the $12.00 price target is based on a 13 times price-to-earnings (P/E) multiple, which has been adjusted to present value using a 10% cost of equity. This valuation method takes into account the significant growth anticipated for Lending Club over the next two years. BTIG's target is also 1.1 times Lending Club's tangible book value as of the first quarter of 2024, which the firm believes is reasonable given the company's current low return on tangible common equity (ROTCE) of 4%.
The analyst from BTIG pointed out that the historical P/E multiple for Lending Club has been around 15 times the one-year forward earnings. They argue that if Lending Club can achieve its goal of a 20-30% return on equity (ROE), the valuation could appear conservative. In such a case, the tangible book value (TBV) valuation could increase to 2-3 times, potentially raising the stock price to between $22 and $33 per share.
The firm's outlook is based on the premise that Lending Club will continue to grow and potentially meet its high ROE targets. It is this expected performance that underpins the ambitious price target, despite it being a premium to the company's earnings multiples for the next couple of years.
Lending Club's stock will be watched closely by investors as the company strives to meet the growth and profitability targets that have informed BTIG's positive outlook. The digital banking sector is competitive, and Lending Club's ability to achieve its financial objectives could significantly impact its market valuation.
In other recent news, LendingClub (NYSE:LC) reported a net income of $12 million in the first quarter of 2024, marking its 12th consecutive quarter of profitability. The company's total revenue amounted to $181 million, driven by a surge in marketplace revenue and net interest income. Following these results, Piper Sandler raised its price target on LendingClub's stock to $10.00, reflecting confidence in the company's financial performance and potential for further growth.
In leadership changes, Ronnie Momen, Chief Business Officer of LendingClub, announced his resignation, effective mid-June. The company has not yet disclosed any plans for his replacement. LendingClub also recently exited its three-year operating agreement as a new bank, providing increased business flexibility.
Looking ahead, LendingClub has adjusted its second quarter outlook, projecting preliminary pre-tax net revenue to fall between $30 million and $40 million due to the impact of higher interest rates on loan sale prices and increased variable expenses. However, the company is ramping up its loan origination volume forecast to between $1.6 billion and $1.8 billion, citing new initiatives and a perceived reduction in market competition. These are recent developments in the company's ongoing operations.
InvestingPro Insights
As BTIG sets a bullish tone for Lending Club with a Buy rating and a $12.00 price target, current metrics provided by InvestingPro shed light on the company's financial health and market performance. With a market capitalization of $926.74 million and a P/E ratio standing at 24.49, the company's valuation is a central focus for investors. The P/E ratio slightly increased to 24.67 over the last twelve months as of Q1 2024, reflecting the company's earnings perspective.
InvestingPro Tips highlight that Lending Club is quickly burning through cash and analysts have revised their earnings downwards for the upcoming period, which could be a concern for potential investors. Additionally, the company's gross profit margin has been weak, recorded at 23.99% over the last twelve months as of Q1 2024. On a positive note, Lending Club's liquid assets exceed its short-term obligations, suggesting a level of financial stability. For those considering an investment, there are 13 additional InvestingPro Tips available which can be accessed through InvestingPro for a more comprehensive analysis.
Investors may also find the recent price movement of Lending Club's stock of interest, with a notable 26.42% increase over the past six months, despite a year-to-date return of -3.09%. Understanding these dynamics can be crucial when evaluating the company's stock potential. To further assist in making informed decisions, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription to InvestingPro, where more detailed insights are available.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.