Morgan Stanley: Time To Buy LendingClub

In a report published Wednesday, Morgan Stanley analysts upgraded the rating on LendingClub Corp. LC to Overweight with a price target of $23. The analysts believe that the current stock valuation underappreciates the secular growth potential while discounting too heavily for risk due to increased competition. After having appreciated for some time following the IPO, LendingClub's stock underperformed its peers. The analysts believe that this underperformance was due to investor concerns regarding the sustainability of the company's competitive advantage, "in light of a rapid increase in the number of new entrants in marketplace lending." "Many investors are questioning LC's ability to continue to originate loan volume in a cost-efficient way and maintain its current level of origination fees," the analysts stated. Despite the increasing number of new entrants and increased competition for the company, LendingClub has been delivering strong metrics and growth. The analysts believe that the market is underappreciating the company's growth potential, which is "driven by increased interest from institutional investors willing to buy marketplace notes, especially from originators with established reputations such as LC." There also are significant marketplace lending opportunities for the company, given that the concept of Lending-as-a-Service (LaaS) is gaining traction. The analysts expect marketplace lenders to grow their US volumes at a CAGR of 47 percent through 2020. "Moreover, because we expect marketplace lenders can reach a customer base that was previously unmet by banks, we expect some market expansion," the Morgan Stanley report added.