LendingClub Fears Are 'Overstated'

LendingClub Corp LC shares have lost about $4 in value over the past month. Pacific Crest thinks this creates an attractive risk-reward for the stock.

The firm sees the potential for shares to double, but trimmed its price target from $23 to $18 "on a more-conservative multiple."

Analysts believe LendingClub's "powerful consumer franchise will continue to generate efficiency gains." Based on industry conversations and its owns in-depth analysis "on core consumer marketing efficiency across offline and online channels," Pacific Crest believes "the market may be underestimating LC's growth and profitability potential. Improved legal and regulatory clarity could improve investors' confidence in the profitability."

Pacific Crest has an Overweight rating on the stock.

Related Link: Lending Club Analyst Sees 'Risks Intensifying,' Maintains Sell With 16% Downside

The firm laid out three key investment debates:

• "Model durability: A return to a more-normal interest and credit environment should have minimal impact on borrowers; we expect investor demand to hold."
• "Legal & regulatory: we expect minimal negative developments."
• "S&M efficiency: We expect S&M as a percentage of originations to rise next year and fall thereafter."

The firm's base case is based on 52 percent CAGR in orgination growth and 54 percent operating growth through 2017, according to the note. The analysts assumed minimal impact form regulatory and legal developments, limited threat from competitors, and sustained investor demand.

The stock traded recently at $8.02, up 1 percent on the day.