Topeka Analysts Are Buying Bankrate And LendingTree: Here's Why

In a recent report, analysts at Topeka initiated coverage of Lendingtree Inc TREE and Bankrate Inc RATE with Buy ratings and price targets of $150 and $19, respectively.

LendingTree

They argued that LendingTree is a leader in the market of connecting online consumers and lenders. However, its market share does not even reach 1 percent, as the loan origination market is highly fragmented.

"The company's ability to build a destination site and leverage its brand, in addition to its effectiveness at paid search marketing to consumers, should help drive market share gains in its mortgage, personal loans and credit card segments over the next several years," the firm said.

The firm estimates LendingTree can increase its revenues at a 32 percent three-year CAGR, hitting EBITDA margins in the mid-teens.

Although the stock trades at a premium valuation of 4.3x EV/Sales, 26.6x EV/EBITDA and 36.1x P/E on Topeka’s 2016 estimates (vs. peers at 3.6x, 26.0x and 41.2x, respectively), the analysts believe "the company's growth opportunity and ability to take market share justify the valuation."

Bankrate

Bankrate leads the market in connecting online consumers with credit card issuers, lenders and senior care providers. Topeka analysts "see opportunity for RATE to increase conversions and add value for customers with dynamic pricing, an improved mobile user experience, and personalization through myBankrate."

Moreover, with a new management and financial team in place, "and the accounting issues that plagued it now behind them, [the company] should be able to accelerate growth."
Bankrate is also divesting its Insurance business, which has been a drag on sales growth and should enable the company to deliver a 10 percent three-year CAGR and expanding EBITDA margins in 2016.

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.