While Lending Club continues to face internal problems, BTIG continues to maintain a positive stance on the stock
After LendingClub Corp. (NYSE:LC) reported strong quarterly results on May 9, 2016, equity firms began updating their stances on the stock. BTIG cut its price target from $21 to $9 last week, cutting it by more than 50%. The equity research firm has now reaffirmed its price target, which indicates a 128.43% upside potential on the stock’s last closing price.
Analyst Mark Palmer at the firm pointed out to a Financial Times article dated May 9, 2016, which had highlighted several issues with the company’s internal controls. In his comments, he said that the incident the Times author had discussed involved just $22 million worth of loans compared to the more than $18.7 billion debt the company has raised since its inception. He also said that he is not questioning the company’s operations, but he did admit that this small amount of loans did raise a red flag. However, he believes that red flag was probably not significant enough to lead to a 51% plunge in the stock.
Pointing out to the media commentary on the company which compares Lending Corp to conventional banks, the analyst said: “What makes LC and its marketplace lending peers different, in our view, is their use of technology to create a cost arbitrage and more efficient capital allocation. While traditional banks have a low cost of capital, LC has a low cost of operation facilitated by its algorithm.”
Mr. Palmer also said that no investor in the company’s loans has been affected from the incident disclosed on May 9. He further added that the news was irrelevant for an average retail investor, as it was not related to loan prices or credit performance.
The analyst reaffirmed his Buy rating on the stock. The Street currently maintains a 12-month mean price target of $8.77, which reflects an impressive 122.58% upside potential over the stock’s previous close.