LendingClub nabs Overweight rating, Upstart rated Underweight at J.P. Morgan
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- LendingClub (NYSE:LC) stock climbed 5.5% and Upstart Holdings (NASDAQ:UPST) stock dropped 3.0% in Tuesday premarket trading after J.P. Morgan analyst Reginald L. Smith initiated coverage of the two lending-focused companies, giving LendingClub an Overweight recommendation and Upstart an Underweight rating.
- "We like LendingClub's (LC) marketplace-bank model, which combines the fee income of a marketplace with interest income of a bank personal loan market opportunity, and competitive positioning," Smith wrote in a note to clients.
- Investors' focus has shifted from the credit quality of LC's loan portfolio to the availability of bank partner funding and the near-term earnings impact of holding more loans on its balance sheet. "Our sense is these third-party funding concerns are transitory and LC's marketplace model thrives in time," the analyst said.
- Meanwhile, Upstart (UPST) has seen defaults increase (from record lows during the pandemic), institutional demand for its riskier unsecured consumer loans wane, and losses on the company's held-for-investment portfolio swell, Smith pointed out.
- "Shockingly, shares are up 28% YTD," he said. "While we like the longer-term potential of UPST’s AI lending platform, the business is proving to be extremely cyclical and sensitive to the whims of its funding partners." He initiates at Underweight due to its funding headwinds, growing on-balance sheet credit exposure, and uncertain near-term origination and profit outlook.
- Smith's Overweight rating on LendingClub (LC) clashes with SA Quant rating of Sell, which assigns poor grades for profitability, momentum and revisions, and aligns with the average SA Analyst rating of Buy.
- His Underweight rating on Upstart (UPST), meanwhile, agrees with the SA Quant rating of Sell and contrasts with the average SA Analyst rating of Buy.
- SA contributor Julian Lin takes a look at how likely a bullish scenario may be for Upstart (UPST).