Why an Earnings Beat is Likely for LendingClub (LC) in Q3?

LendingClub Corporation LC is slated to announce third-quarter 2017 results on Nov 7, after the market closes. Its earnings and revenues are projected to grow year over year.

Last quarter, the company reported loss per share of 6 cents, which came in line with the Zacks Consensus Estimate. However, the quarter witnessed higher revenues and a decline in expenses.

Looking at LendingClub’s earnings surprise history, the company beat estimates in three of the trailing four quarters, the average beat being 29.2%.

However, activities of the company in the third quarter were inadequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate for earnings of 3 cents remained unchanged over the last 30 days. Nevertheless, the figure reflects significant year-over-year improvement.

The company’s price performance does not seem to be that impressive. The stock has gained 7.1% year to date compared with 15% growth of the industry it belongs to.

Will the price performance improve post Q3 earnings? To a great extent, it depends on whether the company is able to beat estimates.

Let’s see what our quantitative model predicts.

A Likely Positive Surprise?

According to our quantitative model, chances of LendingClub beating the Zacks Consensus Estimate in the third quarter are high. This is because the stock has the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better — which is required to increase the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks ESP: The Earnings ESP for LendingClub is +5.00%.

Zacks Rank: LendingClub has a Zacks Rank #3, which further increases the predictive power of ESP.

Factors to Influence Q3 Results

LendingClub’s primary source of revenues is transaction fees on loans, which it helps to issue and subsequently lists online for investors to fund. Since loan originations in the quarter were not substantial, we don’t expect transaction fees to significantly contribute to revenues.

However, the company’s investments in channel diversification and ability to offer affordable credit to a wide spectrum of borrowers should continue to support overall revenue growth.

Management projects total net revenues in the third quarter to be in the range of $154-$159 million, up nearly 37% year over year, driven by multiple borrower initiatives and continued strong demand from both borrowers and investors.

Notably, the Zacks Consensus Estimate for sales for the quarter is $154.4 million, which reflects growth of 37.1% on a year-over-year basis.

The company incurs significant expenditure for selling and marketing its products. For the to-be-reported quarter, LendingClub projects adjusted earnings before interest, tax, depreciation and amortization (EBITDA) to be nearly $18-$22 million.

Management expects net loss in the range of $12-$8 million for the quarter compared with the year ago loss of $36.5 million.

Other Stocks that Warrant a Look

Here are a few other finance stocks you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat in their upcoming releases.

American Equity Investment Life Holding Company AEL is expected to report results on Nov 6. It has an Earnings ESP of +0.40% and a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

TPG Specialty Lending, Inc. TSLX is slated to come up with results on Nov 7. The company has an Earnings ESP of +4.23% and a Zacks Rank #3.

Janus Henderson Group plc JHG is expected to report results on Nov 9. It has an Earnings ESP of +0.41% and a Zacks Rank of 3.

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