Bear Of The Day: Lending Club (LC)

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Lending Club (LCis a Zacks Rank #5 (Strong Sell) that provides internet financial services. The company provides commercial and industrial, commercial real estate, small business, and equipment loans, as well as leases equipment; and unsecured personal and auto, patient finance, and education finance loans. Lending Club also operates an online lending marketplace platform that connects borrowers and investors.

The stock is trading at 2022 lows after earnings disappointed investors. With the stock down 80% from 2021 highs, it looks like investors will continue to let this one the bleed lower.

 

About the Company

Lending Club was founded in 2006 and is headquartered in San Francisco, CA. The company employs over 1300 people.

LC is valued just over $1 billion and has a Forward PE of 7. The company holds a Zacks Style Scores of “A” in Value, but “C” in Growth.

 

Q3 Earnings

The good news is that Lending Club surprised to the upside for Q3, beating expectations by 3%. This was the ninth straight beat on EPS, a streak that started in late 2020.

The bad news is the company guided Q4 revenues lower and narrowed their top line FY22 guide below expectations.

For the most part, the quarter wasn’t as bad as some tech companies have reported this quarter. However, marketplace volumes are being impacted by the rapid increase in interest rates. So, future growth is coming into question and investors sold the stock.

LC was trading at $12 before EPS and fell all the way to $9.60 after earnings were released.

 

Estimates

Since earnings, analysts have taken estimates down aggressively.

For the current quarter, estimates have dropped from $0.31 to $0.19 over the last 7 days, or 38%. For next quarter, the numbers have fallen 30% over the same time frame.  

For the current year, estimates have fallen 7% over the last 30 days. For next year, they have been cut 20% over that same time frame.

 

Technical Take

The stock saw a big short squeeze that took price from $15 to $49 in just three months. LC was part of the meme stock movement that took some names to irrational levels.

For about a year, the stock has just grinded lower, trapping any new buyer that entered the stock. When a stock bleeds lower like LC has, there are a lot of investors just looking to get out on the next pop higher.

The stock will see resistance at $12, which is the 50-day moving average. If for some reason the bulls start to push, the next selling spot is the 200-day at $14.40.

So where could one buy the stock?

The $5 level where it traded during the onset of the pandemic could be the spot. Considering the potential for a tough 2023 on the fundamental side, investors might start to come in based on valuation.

 

In Summary

Lending Club is starting to see some growth issues as we head into 2023. With the stock down over 80% from 2021, some investors view the stock as a bargain.

However, there is room lower, so patience should be stressed here as the macro story plays out in 2023.

For those interested in the sector, a better option might be StoneX Group (SNEX). The stock is a Zacks Rank #1 (Strong Buy) and is trading near all-time highs.  


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