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Morgan Stanley Downgrades LendingClub, But Is Convicted Its Platform Remains Viable

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While some initial data points for institutional funding seem encouraging, there is still significant uncertainty, Morgan Stanley’s James E Faucette said. He reinstated coverage of LendingClub Corp (NYSE: LC) with an Equal-Weight rating, while establishing a base case value range of $4-$8. The analyst commented that although growth expectations have been significantly lowered, the company’s platform will likely remain viable.

Analyst James Faucette believes that LendingClub should be able to “navigate its way through the recent mishaps, even if the end state is more of a niche lending platform than the financial disruptor it was previously seen to be.” The stock could range between $4 and $8, depending on the extent and speed of a rebound in funding on the platform.

Areas Of Uncertainty

While institutional funding seemed to be slowing, it is unlikely to disappear. “Based on our conversations with industry contacts, it appears that some institutional investors have already returned to the platform, and while it is entirely possible that these are relatively small investors that may have had less to audit/assess, this is still a positive indicator of the attractiveness of LC loans,” Faucette wrote.

The analyst mentioned the following areas of uncertainty:

  1. The magnitude of the funding rebounds and how quickly the recovery takes place
  2. Whether Scott Sanborn is an interim CEO and whether the company will seek a replacement over time
  3. The scope and outcome of DoJ, SEC and NY DFS investigations into LendingClub, which could result in incremental legal expenses and act as a deterrent to institutional capital

Latest Ratings for LC

DateFirmActionFromTo
Jul 2019MaintainsEqual-Weight
May 2019UpgradesNeutralOutperform
Aug 2018MaintainsNeutralNeutral

View More Analyst Ratings for LC
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Posted-In: James E Faucette Morgan StanleyAnalyst Color Initiation Analyst Ratings

 

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