On Monday, LendingClub Corp (NYSE:LC) released second-quarter results after facing millions of dollars in higher costs, elevated professional fees, investor incentives, and severance and retention costs. In reaction to results that dropped below expectation, FBR analyst Bob Ramsey reiterates a Market Perform rating and $4 price target.
LC closed the quarter with EPS of ($0.09), below Ramsey’s projection of $0.10 and $0.04 under the Street’s estimate. Ramsey points to unexpectedly high engineering and product development, strategic review costs, and other G&A costs, which the analyst calls “unusual,” as just part of the cause for these weaker than anticipated results and outlook for the company. However, Ramsey does note origination volume performed better than expected, with LC’s servicing portfolio balance seeing an increase to $10.7 million.
Ramsey explains, “LC did not provide an update on its long-term EBITDA guidance, but it is difficult to see how LC can get to the same level with a lower contribution margin. Given the drop in originations, LC reduced some staff, but adjusted EBITDA is and will remain negative (despite the add back of significant stock comp expense) and we would like to see more focus on profitability, especially as originations are falling. LC also announced the company’s CFO has resigned.”
As a reflection of a clear surge in higher costs, Ramsey has reduced both respective 2016 and 2017 operating EPS from $0.12 down to ($0.13) and from $0.20 down to ($0.05). Between a very gradual return of investors to the platform at lower levels, the recent drop in loan demand (though LC has responded proactively by cutting marketing spending expenses and honing in instead on investor-geared resources), and LC’s CFO Carrie Dolan resigning without a replacement at the end of the tunnel any time soon, Ramsey remains cautiously sidelined on the firm.
As usual, we recommend taking analyst notes with a grain of salt. They do often successfully impact stock prices, but we advise wisely to check their performance. According to TipRanks, one-star analyst Bob Ramsey has a 58% success rate while facing a loss of 1.1% in his annual returns. When recommending LC, Ramsey sees a loss of 43.5% in average profits on the stock.
TipRanks analytics show LC as a Hold. Based on 12 analysts polled by TipRanks in the last 3 months, 1 rates a Buy on LendingClub, 9 maintain a Hold, and 2 issue a Sell. The consensus price target stands at $5.11, marking a nearly 9% upside from where the stock is currently trading.
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