JPMorgan Analyst Reginald L. Smith noted that 2024 was a tale of two halves for fintech stocks. After a lagging start to the year, the total market capitalization of analysts’ fintech coverage universe has risen by more than $65 billion since mid-September, fueled by upbeat Q3 2024 results and management commentary, two rate cuts and the US presidential election . Election.
In fiscal 2025, lower benchmark rates and an improved third-party financing environment should lead to higher loan volumes and healthier profit-on-sales (GOS) margins for fintech lenders.
However, Smith remains cautious on fintech lenders at current levels and big-name investors will find a more attractive entry point after the fourth quarter earnings cycle.
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Smith demoted Upstart Holdings Inc (NASDAQ:UPST) from Neutral to Underweight and raised the price target from $45 to $57.
Upstart Holdings benefits from a powerful flywheel effect that creates a virtuous cycle where more excellent reimbursement data leads to improved risk and fraud detection, leading to higher approval rates and increased volume.
Smith noted the potential of Upstart Holdings’ AI lending platform, especially in light of an improving consumer credit and loan financing environment, and is encouraged by the company’s increasingly sustainable capital base, but continues to struggle with valuation and quoted share prices in an instant – back to the level of production for the 2022 budget year, which is still at least a few quarters away.
The price target increase reflects improving financing conditions and stabilizing credit trends. The price target uses a ~5.5x multiple of Smith’s revenue estimate for calendar year 2026, a slight premium to the TTM P/S ratio, which he noted as fair rates remain relatively high, and Upstart’s own UMI suggests the macro environment causes bankruptcies. rates must be more than 40% above historical levels.
The revaluation reflects Upstart Holdings’ annualized origination volume of ~$13 billion, the last time the stock traded in the high $70 range. Smith forecast a fourth quarter of $180 million and adjusted earnings per share of $(0.04).
Smith demoted Lending Club Corp (NYSE:LC) from Overweight to Neutral and raised the price target from $14 to $17.
Smith noted LendingClub’s marketplace banking model, which combines a marketplace’s commission income with a bank’s interest income, personal loan market opportunity 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 ROTE.
