J.P. Morgan Analyst Reginald L. Smith noted that 2024 was a story of two halves for fintech stocks. After a late start to the year, the overall market capitalization of the analyst’s fintech coverage universe has increased by more than $65 billion since mid-September, fueled by pleasing third-quarter 2024 results and management comments, two rate cuts and the US presidential election. Election.
In fiscal 2025, lower benchmark rates and an improving third-party financing environment are expected to lead to increased loan origination and healthier gain-on-sale (GOS) margins for fintech lenders.
However, Smith remains cautious of fintech lenders at current levels and noted that investors will find a more attractive entry point following the fourth quarter earnings calendar cycle.
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Smith decommissioned Upstart Holdings, Inc. (NASDAQ:UPST) from Neutral to Underweight and raised the target price of $45 to $57.
Upstart Holdings benefits from a powerful flywheel effect that creates a virtuous cycle in which more excellent reimbursement data leads to better risk and fraud detection, resulting in higher approval rates and increased volume.
Smith highlighted the potential of Upstart Holdings’ AI lending platform, particularly in light of the improving consumer credit and loan financing environment, and is encouraged by the capital base of more more sustainable of the company, but continues to struggle with valuation and the rated shares go up in the blink of an eye. -return to the level of originations for fiscal year 2022, which is at least a few quarters away.
The increase in the price target reflects improving financing conditions and stabilizing credit trends. The price target applies a multiple of approximately 5.5x to Smith’s earnings estimate for calendar year 2026, a slight premium to his TTM P/S ratio, which he rated as fair given that rates remain relatively high, and Upstart’s UMI suggests that the macro environment is causing a fault. rates are expected to be 40% higher than historic levels.
The revaluation reflects Upstart Holdings’ roughly $13 billion annualized issuance volume the last time the stock traded in the high $70 range. Smith forecasts a fourth quarter of $180 million and adjusted EPS of $(0.04).
Smith decommissioned LendingClub Corp. (NYSE:CL) from Overweight to Neutral and raised the price target of $14 to $17.
Smith highlighted LendingClub’s market-bank model, which combines a marketplace’s fee income with a bank’s interest income, personal loan market opportunities and competitive positioning.
Investors’ concerns have shifted from the credit quality of their loan portfolio to the availability of third-party financing and the company’s ability to grow its balance sheet and improve its ROTE.