BTIG Urges Investors to Sell Square Inc (SQ) and Buy LendingClub Corp (LC)

What does the future hold for SQ and LC? BTIG's Mark Palmer weighs in.


BTIG analyst Mark Palmer is out today with two stock recommendations: (1) Sell Square Inc (NYSE:SQ) (2) Buy LendingClub Corp (NYSE:LC). Why? Let’s take a closer look.

Before we start, as usual, we like to include the analyst’s trackrecord when reporting on new analyst notes. According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Mark Palmer has a yearly average return of 7.7% and a 58% success rate. Palmer is ranked #433 out of 4761 analysts.

Square Inc

Palmer believes SQ is still intermingling with bitcoin’s price, or as he calls it, “SQ shares appears to have been a muted version of Bitcoin’s wild ride.” A relationship that the analyst does not believe is conducive. In addition, Palmer points out that a stiffer competition for larger sellers looms.

As such, Palmer reiterates a Sell rating on Square shares, with a price target of $30, which represents a potential downside of 34% from where the stock is currently trading.

The analyst wrote, “We have been somewhat surprised by the extent to which the relationship between SQ’s stock price and its involvement with Bitcoin has developed insofar as we view the contribution from the Cash App/Bitcoin offering to the company’s near-to-medium term operating performance as marginal. However irrational this may be, the fact remains that for almost three months the SQ narrative has been conflated with the Bitcoin narrative despite the latter’s likely minimal real impact on the former.”

With respect to competition, “We do not believe FDC has to beat SQ all of the time or even most of the time for it to have an impact on the trajectory of SQ’s growth among larger sellers for which the firms compete. […] One way that SQ likely will seek to keep or attract larger sellers amidst a more competitive environment is through Square Capital, which provides loans to merchants who use the company’s payment processing services. While SQ holds only a small portion of the loans it originates, we believe that as the company becomes increasingly dependent on credit as a means of driving its growth that it will also become increasingly vulnerable to credit-market volatility,” the analyst added.

Not all analysts on the street voice Palmer’s bearish forecast for the mobile payments firm, as TipRanks analytics showcase SQ as a Buy. Based on 13 analysts polled in the last 3 months, 9 rate a Buy on SQ stock, 3 issue a Hold, while only one recommends a Sell on the stock. The 12-month average price target stands at $310.93, marking a slight upside from current levels. 

LendingClub Corp

LendingClub shares are tumbling nearly 6%, as of this writing, after the online loan provider delivered a comprehensive mixed bag of positives and negatives in its fourth-quarter earnings report.

However, Palmer remains bullish on LC stock, reiterating a Buy rating and a $7.00 price target.

To put the rating into context: “At this point, we believe LC should be assessed by the extent to which its positive optionality remains intact. The company’s revenues grew by 20% during 4Q17 and consensus estimates call for it to generate almost $700mm in revenue during FY18. We stated in a January 10 note that LC’s expense structure appeared excessive and that we believe the company could meaningfully help its own cause by rationalizing its expense base. With all of that said, LC shares at today’s close traded at just 7.1x consensus FY20E adjusted EBITDA and the risk/reward associated with the story remains interesting, in our view.”

The majority of the Street sides with Palmer’s positive take on the peer-to-peer lending platform, as TipRanks analytics demonstrate LC as a Buy. Out of 11 analysts polled in the last 3 months, 7 are bullish on LendingClub stock, while 4 remain sidelined. With a return potential of 41%, the stock’s consensus target price stands at $5.50.

 

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