LendingClub (LC) Q2 Earnings: What's In Store For The Stock?

LendingClub Corporation (NYSE:LC) is slated to announce second-quarter 2016 results on Monday Aug 8, after the market closes.

Last quarter, LendingClub’s earnings were in line with the Zacks Consensus Estimate. Results benefited from substantial growth in revenues while higher costs were the undermining factor.

Notably, the company recorded an average positive surprise of 100% for the trailing four quarters.

Factors to Impact Q2 Results

In the run up to the second-quarter results, the main issue that dominated headlines for LendingClub was the regulatory spotlight on its business practices. This began with the sudden resignation it’s the then CEO, Renaud Laplanche. The resignation was followed an internal investigation which revealed a violation in the company’s business practices.

Further, LendingClub stopped providing its quarterly and annual guidance. Also, the company revealed that several large investors are reluctant to invest and have stopped investing in loans in the wake of Laplanche's resignation.

In such a disappointing scenario, LendingClub came up with changes to its standard program loans, in order to regain investors’ confidence. While it is not known how much effect it had, the company’s share prices have been witnessing a free fall, with year-to-date decline of more than 58% (majorly subsequent to the disclosure of above-mentioned matter).

Therefore, amid this depressing situation, LendingClub is likely to face a significant decrease in its revenues, despite efforts undertaken to push up loan growth. Moreover, the company noted that owing to the changes, loan volume is likely to fall 5%.

Apart from this, several other challenges continue to plague the online lending sector. These include venture capital funding, interest rate risk, the economic cycle and the regulatory landscape. These are also likely to have an adverse impact on LendingClub’s top-line growth.

Additionally, rising expenses remain a headwind. As LendingClub seeks to maximize the use of technology to make borrowing cheaper and easier, it needs to constantly maintain and upgrade its online platform, thus increasing technology-related expenses. Also, the company incurs significant expenditure for selling and marketing its products.

Further, given the probe initiated by the regulatory authorities, this time LendingClub should record a sharp increase in regulatory expenses as well. So, operating expenses should trend higher in the quarter, thereby hurting the company’s bottom line.

Driven by these concerns, analysts are bearish on LendingClub second-quarter results. The Zacks Consensus estimate for the quarter is a loss of 4 cents.

Earnings Whispers

Will LendingClub be able to get past the regulatory scrutiny of its financials and surpass the earnings estimate this quarter? Let’s see what our proven model indicates:

Our proven model does not conclusively show that LendingClub will beat earnings in the second quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for this to happen. This is not the case here as you will see below.

Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at 0.00%.

Zacks Rank: LendingClub’s Zacks Rank #3 increases the predictive power of ESP, but we need to have a positive ESP as well to be sure of an earnings beat.

Stocks That Warrant a Look

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

Parkway Properties Inc. (NYSE:PKY) has an Earnings ESP of +6.45% and a Zacks Rank #3. It is scheduled to report on Aug 8.

The Earnings ESP for AerCap Holdings N.V. (NYSE:AER) is +1.40% and it has a Zacks Rank #2. The company is slated to report on Aug 9.

Sun Life Financial Inc. (TO:SLF) has an Earnings ESP of +1.47% and a Zacks Rank #2. It is scheduled to release results on Aug 10.