LendingClub's Investor Day Shows Why The Stock is Still A Screaming Bargain

Last month, fintech marketplace and bank LendingClub (NYSE: LC) delivered strong third-quarter earnings, while also hinting at a rebranding that will take place next year.

The company followed up that earnings report with an Investor Day on Nov. 5, during which LendingClub provided "medium-term" financial targets. While the company didn't specify exactly what it meant by "medium-term," investors can make a fairly reasonable estimate of the time-frame and future earnings power by extrapolating key performance indicators management did disclose.

Adding it all up, if LendingClub hits its originations targets, the stock looks screamingly cheap today.

20%-30% originations growth looks solid

As I wrote earlier this month, while last quarter's 37% originations growth for LendingClub wasn't as fast as some rivals were growing, the quality of that growth appears superior, with LendingClub generating more revenue and profit per loan than its peers.

The good news is that LendingClub intends to grow originations at a similar pace going forward, putting forth a 20% to 30% annual growth target at Investor Day, signaling minimal deceleration. While competitors are currently growing originations seemingly as fast as they can off the recent cyclical "bottom," LendingClub appears to be setting a growth pace that it can replicate consistently.

Over that medium-term timeframe, LendingClub anticipates reaching $18 billion and $22 billion in annual originations, up from the company's current annualized run rate of $10 billion. LendingClub anticipates bank assets will rise to approximately $20 billion over the same period, up from the current $11 billion.

And that growth isn't just for growth's sake; LendingClub believes it can achieve this growth with increasing efficiency, expanding its return on equity from 13% today to between 18% and 20%.

How LendingClub plans to achieve these numbers

Management also presented more granular details as to how these numbers would be achieved. First, the company expects an incremental $5 billion to $8 billion of additional personal loan originations growth. Personal loans are the backbone of the company's business today, with credit card debt consolidation being the primary source of LendingClub's personal loan borrowers at about 82% of the current borrower base.

Given the large market opportunity of $1.2 trillion in high-rate U.S. credit card debt outstanding, it seems highly achievable that LendingClub can ramp its loan volume by an additional $5 billion to $8 billion, while still adhering to its conservative underwriting ethos.

But LendingClub also unveiled a new market it's targeting: the home improvement market. LendingClub has already been financing major consumer purchases, such as elective surgeries, fertility treatments, education, and other large one-time expenses with its core personal loan product. Management noted a roughly $1 billion origination run-rate for these types of loans, or approximately 10% of current originations.

LendingClub is now looking to expand further into that large purchase category by targeting the $500 billion home improvement market. Beginning in 2026, LendingClub will partner with Wisetack, a leading platform for home improvement financing. To help its entry into the market, LendingClub also purchased the technology from a bankrupt start-up called Mosaic.

Mosaic was previously a private lender geared toward solar loans, but declared declared bankruptcy in September, likely as a result of the slowdown in that specific market. As was the case with LendingClub's purchase of IP from bankrupted fintechs Tally and Cushion last year, LendingClub continues to capitalize on the misfortunes of promising fintech start-ups that went out of business after the interest rate shock that began in 2022.

With Mosaic's IP and Wisetack's existing distribution, LendingClub believes it can expand its major purchase finance business by $2 billion to $3 billion in annualized originations over the medium-term.

Finally, LendingClub has a small but nascent auto loan business and a secured business lending segment. Management expects those combined originations to grow by another $1 billion over the medium-term, rounding out its $8 billion to $12 billion total originations growth target.

Image source: Getty Images.

How LendingClub plans to increase returns on those growing assets

But LendingClub isn't merely growing assets and originations for growth's sake; it also believes it can increase returns on those assets in three ways. First, management anticipates a three-to-four percentage-point increase due to the growing loans held on the balance sheet, which generate higher returns than loan sales. Along with a higher amount of retained loans, management sees expanding net interest margins on those loans as the short-term Federal Funds rate declines.

Second, management also sees another one- to two-percentage-point improvement from loan sale prices. Following the 2022 inflation and interest rate shock, loan prices fell, but have been steadily recovering over the past two years in response to lower short-term rates. Lower rates lower the cost of capital for prospective loan buyers, thereby increasing the price at which LendingClub can sell its loans. Management sees that trend continuing as the Fed funds rate eventually approaches "neutral," which LendingClub sees at around 3%.

Finally, LendingClub has done a great job of cost control, a necessity during the pandemic, post-pandemic rate shock, and regional bank crisis of 2023. With a strong efficiency "muscle" having been built, management continues to see operating costs growing more slowly than revenue going forward, leading to an additional one to two percentage points of ROE.

It all adds up to a cheap stock

With these growth and return targets, investors can back their way into some compelling earnings numbers in the coming years.

First, we can roughly infer what the term "medium-term" means. Based on 25% annualized originations growth -- the midpoint of guidance -- LendingClub would hit its $20 billion originations goal in about three years. At that time, management projects bank assets will reach $20 billion, up from $11 billion today.

Today, LendingClub's equity-to-assets ratio is 13.2%. Assuming some of that is excess capital, and we apply just a 12% equity-to-assets ratio in the medium-term, that would get LendingClub to roughly $2.4 billion in stockholder's equity by that time.

Taking a 19% return on equity, the midpoint of guidance, and applying it to the $2.4 billion equity base would translate into $450 million in "medium-term" earnings.

LendingClub's market cap is only $1.85 billion today. That means if LendingClub hits its financial targets on time, the stock is trading for just over four times 2028 earnings today.

No wonder LendingClub also unveiled its first-ever share repurchase program at Analyst Day as well, to the tune of an initial $100 million, to take advantage of its heavily discounted stock.

Billy Duberstein and/or his clients have no positions in LendingClub and has the following options: short January 2026 $12 puts on LendingClub. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.