Sterne: We're Upgrading LendingClub

In a report published Tuesday, Sterne Agee analysts upgraded the rating on

from Underperform to Neutral, with a price target of $17.50. The analysts mentioned that the company's share price has come close to the price target and the recent guidance already reflects prospects of a slowdown in revenue growth and lower profitability. In the report Sterne Agee noted, "The bulls on the stock are focused on more "internet"-like valuation multiples and less conventional forms of valuation based on items such as adjusted EBITDA and price to origination volumes. A more bearish view emerges if one bases their valuation of the stock on compliant specialty finance companies or the mortgage industry." The analysts expect the company's revenue and originations growth to decline in 2015, with the profitability metrics eroding. This is, however, already reflected in the estimates, consensus expectations and management's guidance. In case LendingClub is able to achieve its growth objectives, the company will become "large enough to attract the attention of potential competitors such as the major credit card banks and the eye of bank regulators, who are likely to demand the company work with a larger and better capitalized agent bank and could also require that LC have more of its own capital at risk," the analysts commented. LendingClub would be able to address both these issues as long as it remains focused on reducing the borrowing cost for prime quality borrowers. With the stock trading close to the price target, it appears that "most investors have quantified the short-term issues and headwinds to share performance," the report added.