LendingClub shares could gain 55% if we avoid a severe recession

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LendingClub Corp (NYSE: LC) will offer lucrative returns if the U.S. economy avoids a severe recession, says Reginald Smith. He’s an Analyst at JPMorgan Chase & Co.

LendingClub shares have upside to $11

On Tuesday, Smith assumed coverage of the financial services company with an “overweight” rating. He sees upside in its shares to $11 that signals potential for a whopping 55% return.

The analyst dubs LendingClub a leading player in personal loans – a market he expects will triple or even quadruple in size moving forward.

We like LendingClub’s marketplace-bank model, which combines the fee income of a marketplace with interest income of a bank, personal loan market opportunity, and competitive positioning.

Last month, the California-based company named former JPMorgan executive Stephen Cutler to its Board of Directors. LendingClub shares are down nearly 35% versus their year-to-date high at writing.

LendingClub is a profitable company

Smith is bullish on LendingClub shares also because the company is profitable on GAAP basis. Its stable revenue stream factored into his bullish call as well.

Investor concern has shifted from credit quality of their loan portfolio to availability of bank partners funding. Our sense is these 3rd party funding concerns are transitory and LC’s marketplace model thrives in time.

The financial technology company is expected to report its Q1 results in the final week of April. Consensus is for it to earn 8 cents a share this quarter versus 39 cents per share a year ago.

Other reasons cited for the constructive view on this financial stock include its operating expense base that’s one of the lowest among its peers.

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