Categories Analysis, Finance

Why LendingTree (TREE) can be a good investment in times of crisis

LendingTree expects flat earnings and higher revenues for Q1

All businesses have been affected by the coronavirus outbreak that sent stock markets into a tailspin recently, and LendingTree (NASDAQ: TREE) was no exception. Shares of the online lending marketplace hit a new low last month and have been struggling to recover since then.

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The North Carolina-based company is quite bullish about its prospects this year, especially in terms of market share growth. It expects to leverage the revamped portfolio, which currently includes new offerings like auto and education loans as well as credit card. According to the company, which aspires to be a full-fledged financial wellness platform, the market’s response to the newly launched insurance business has been positive.

Buy It?

LendingTree offers an investment opportunity that investors cannot ignore. Market watchers overwhelmingly recommend buying the stock, which is projected to cross the $300-mark in a year. The last closing price is around $203. While the changed interest rate environment and the pandemic crisis are having a mixed effect on the company, the diversified business and strong cash position should help it stay resilient to the turmoil to some extent.

Unique Model

The primary factors behind the optimistic outlook are the consistent improvement in revenue generation over the years, coupled with the ever-expanding portfolio. The unique model allows the company maintain hassle-free operations even during the lockdown, since most of the transactions are done online. While ramping up the platform through strategic acquisitions, the company also returns capital to shareholders regularly through stock buybacks.

Room for Caution

It goes without saying that no investment is risk-free in these troubled times. Considering the changed scenario, several factors need to fall in place for LendingTree to achieve its goals. Last week, the company lowered its revenue and margin guidance for the first quarter to reflect the deepening uncertainty, while keeping the EBITDA outlook intact. It also suspended the full-year guidance.

Commenting on the decision, CFO JD Moriarty said, “the downstream impacts of social distancing and related economic pullback are affecting our marketplace participants to varying degrees. We expect the Consumer segment to be most impacted as unsecured credit and the flow of capital in certain corners of the market have tightened.”

Outlook

When the company unveils its first-quarter numbers in the first week of May, market watchers will be looking for flat earnings of $1.08 per share on revenues of $288 million, which represents a 10% year-over-year increase.

After a volatile year, LendingTree entered 2020 on a positive note and remained stable until the market was hit by the pandemic a few weeks ago. The stock has lost 48% in the past twelve months and 33% since the beginning of the year.

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