The Supreme Court’s decision not to review the Madden vs Midland case leaves Morgan Stanley analyst James Faucette hanging on to his Equal-Weight rating for LendingCorp, claiming that the decision may leave investors in limbo, trying to figure out just how well the company is protected.
The analyst notes that the court’s decision not to hear the case is binding in the states of New York, Connecticut, and Vermont, and LendingClub believes itself to be insulated in terms of how the decision will affect the company. Faucette explains that in the Madden case, the loan servicer altered the Choice of Law state to Delaware, where neither the servicer nor bank were domiciled, however LC’s loans are originated by Utah-based WebBank and disbursed in Utah providing clear justification for utilizing Utah as the Choice of Law state for their loan agreements.
Further, LC has also reformed its agreements with WebBank such that the bank now carries some risk with the borrower over the life of the loan, further distancing LC’s loan model from the Madden case. The analyst concedes, however, that despite the limited implications close to home, the Supreme Court’s decision will still leave some uncertainty for investors. The analyst explains, “LC’s exposure to the ruling was the 12.5% of its total portfolio where interest rates exceeded state interest rate caps,” in all states. The analyst also upholds that, if need be, LC can reduce its exposure to the ruling by “flexing” its own rates in the 3%-4% range.
Adding to the analyst’s rating is the increased competition in the lending market as players make it easier to identify CRA eligible borrowers. According to Faucette, LendingTree recently introduced a new tool that eases the process of finding eligible borrowers. The analyst adds, “We would likely become more constructive with some affirmation that institutional investors, like retail investors, plan to return to the platform once everything normalizes.”
The analyst reiterates an Equal-Weight rating for LC without a price target. Faucette is a top rated analyst on TipRanks with a 71% success rate and an average return of 8.9%.
According to TipRanks analytics, the average price target for LC is $5.81, marking a 28.03% upside from current prices. Only 8% of analysts issue a Buy rating for LendingClub, while 77% maintain a Hold rating, and the remaining 15% uphold a Sell rating for the stock.
Paypal Holdings Inc
As he monitors the evolving impacts of the Brexit, Deutsche Bank analyst Bryan Keane weighed in on PayPal and explains how he believes the company will stand up to competition in the evolving merchant solution market.
Keane believes that PayPal will be able to hold its own among the emerging competition in the merchant solution and in browser payment solution marketplace. The analyst upholds that PayPal maintains a competitive edge over other players like Apple due to some issues he has identified in Apple’s upcoming in browser Apple Pay launch. The analyst explains “It [Apple Pay] will be limited initially to the Safari browser, which only has 5% and 24% market share on desktop/laptop and mobile.” In addition, Apple pay will not possess the “Omni-channel” presence that PayPal offers and the analyst believes that, at first, user experience will be “very clunky requiring authentication on phones/watch.”
In addition to a competitive edge, the analyst believes that any potential agreement with networks should be a win-win for PayPal. In his analysis, Keane states, “We believe incremental transaction expenses for PYPL on card transactions vs ACH may potentially be offset by gaining preferential interchange rates.” The analyst estimates the funding mix to be at 55% cards with a breakdown of 30% credit and 25% debt. The other 45% of funds will be 25% ACH, 18% balances, and 2% PYPL credit.
The analyst reiterates a Buy Rating for PYPL with a price target of $44.00. He notes that potential risks for PayPal stock include “a decline in consumer spending/eCommerce volumes, disintermediation risk in mobile, decline in margins/or increase in funding costs, competitive risk from alternate payment options, and acquisition integration.”
Keane is a top performing analyst on TipRanks with a 63% success rate and an average return of 7.6%.
According to TipRanks statistics, the consensus price target for PYPL is $43.06, marking a 22.19% upside from current prices. Currently, 58% of analysts maintain a Buy rating for PYPL, while 38% issue a Hold rating, and the remaining 4% uphold a Sell rating for the stock.