LendingClub Corp: Top Analyst Believes Near-Term Headwind Won’t Last Too Long

Michael Graham points out the cause of LC's lower guidance is a short-term sacrifice for long-term growth.


LendingClub Corp (NYSE:LC) shares are plunging almost 15% after the San Francisco-based peer-to-peer online lender delivered a third quarter print at the bottom end of its guide, with fourth quarter outlook of $158 to $163 million meaningfully underwhelming the Street’s forecasts. This does not make investors too thrilled ahead of the company’s forthcoming Investor Day conference come this time next month.

Top analyst Michael Graham at Canaccord believes the “focus shifts to 2018 after light Q4 guidance” for the online lender, reiterating a Hold rating on LC stock while cutting the price target from $7 to $6, which implies a 29% increase from current levels.

The LC team explains away its guidance dip as result of its choice to get the ball rolling on implementing the company’s next-generation credit model, acknowledging near-term pressure here on both originations as well as top-line gains. Therefore, the action is “deliberate” with the intent of offering advantageous growth next year, as the LC team hopes this new credit model can bolster its borrower base profile, Graham highlights, adding on a positive note: “Based on management comments, we believe that this implementation will happen fairly quickly, so we expect any drag on originations to be short-lived.”

Overall, “Despite beating consensus on originations in Q3 and posting its highest quarterly net revenue in its history, the earlier implementation of its next-generation credit model slowed down the company’s momentum from H1/17. Although management stated that its securitization program continues to attract widespread investor interest and borrower initiatives continue to be rolled out, these positive developments were outweighed by the near-term outlook. We continue to remain on the sidelines as we look for the building blocks of sustainable originations growth, and we look forward to the company’s December 7 analyst day for more depth around how management is thinking about next year,” surmises Graham.

In reaction, the analyst is taking his estimates down due to “lower originations growth,” with EPS expectations for 2017 dialing back from $0.03 to $0.02 and for 2018 falling from $0.20 to $0.17.

Michael Graham has a very good TipRanks score with a 61% success rate and a high ranking of #148 out of 4,707 analysts. Graham yields 14.7% in his yearly returns. However, when recommending LC, Graham forfeits 52.6% in average profits on the stock.

TipRanks analytics exhibit LC as a Buy. Out of 7 analysts polled by TipRanks in the last 3 months, 4 are bullish on LendingClub stock while 3 remain sidelined. With a return potential of 44%, the stock’s consensus target price stands at $6.61.