Brad Capuzzi, an analyst from Piper Sandler, has initiated a new Buy rating on LendingClub (LC).
Brad Capuzzi has given his Buy rating due to a combination of factors surrounding LendingClub Corporation’s (LC) financial outlook and market position. In Capuzzi’s assessment, LendingClub appears poised for earnings growth driven by an anticipated rise in net interest margins in 2024, which is expected to result from reduced funding costs and substantial cost-saving measures. Additionally, the moderation of net charge-offs during the latter half of 2024 supports this positive outlook. The ability of LendingClub to fund loans through its deposits is seen as a critical lever for lowering funding costs, and the current valuation of LC’s stock at 0.55x price to tangible book value (P/TBV) is deemed undervalued given the projected 10% return on tangible common equity (ROTCE).
Furthermore, Capuzzi sees potential for credit losses to decline in 2024 due to tighter underwriting standards and a shift towards higher credit quality loans, which should contribute to an expansion in return on assets (ROA). The attractive valuation also suggests that there is significant upside with a relatively protected downside, with the market pricing in a more conservative long-term ROTCE compared to Piper Sandler’s more optimistic estimates. Capuzzi’s price target of $8, based on a 14% discount rate on normalized 2025 earnings, reflects a P/TBV multiple of 0.7x, with room for upward revaluation if LendingClub achieves mid-teens ROTCE and pursues strategies such as share repurchases or reinvestment of excess cash into higher yielding assets.
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LendingClub (LC) Company Description:
LendingClub Corp. engages in the operation of an online credit marketplace for borrowers and investors. It offers personal, business, auto refinance, K-12 education loans and patient solutions. The company was founded by Renaud Laplanche and Soulaiman Htite on October 2, 2006 and is headquartered in San Francisco, CA.
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